Solution is simple. A 95% tax on all those in the entertainment industry - music, cinema, TV, networks, actors, sports, etc.It's time they start doing their "fair share" instead of bossing the rest of us to cough it up.

****Schwarzenegger likely to veto social programs

Jul 28, 3:41 AM (ET)

By JUDY LIN

(AP) Gov. Arnold Schwarzenegger talks with his staff about potential line-item vetos while going over...Full Image SACRAMENTO, Calif. (AP) - Gov. Arnold Schwarzenegger on Tuesday is expected to use his line-item veto power to make additional cuts to the California's latest spending plan - a move advocates fear could hurt the poor.

Social service advocates worry the Republican governor has little choice but to go after money counties receive to administer welfare and social service benefits. Likely targets include welfare-to-work assistance, in-home support, foster care and health insurance for poor families.

With much of state spending tied up by federal and constitutional requirements, the Schwarzenegger administration believes more cuts are necessary to provide a cash cushion for the state in case of emergencies such as earthquakes and wild fires.

"I just want to assure everyone that we will build up our reserve. We will make the necessary cuts," the governor said Friday in announcing he'll sign the budget passed by the Legislature.

The governor and lawmakers had planned for a reserve in the revised budget, but the Assembly rejected two measures - raiding local transportation funds and authorizing additional oil drilling - that would have brought $1.1 billion to the state.

The governor's spokesman, Aaron McLear, said Schwarzenegger will try to fill that $1.1 billion but isn't expected to cut by that much. He declined to release details.

"We will always be in a position to aggressively respond to disasters," McLear said.

Advocates view additional cuts to social programs as another blow since the Schwarzenegger administration has reduced benefits in response to the recession.

California's economy has been hit by the housing market slump and high unemployment, and the latest efforts to close a $26 billion shortfall, just five months after lawmakers and the governor ended months of negotiations to close a previous $42 billion deficit.

Under the budget the governor will sign Tuesday, the state will impose tougher sanctions on CalWORKS recipients who don't meet work requirements. And in-home support workers will have to undergo background checks and have their fingerprints taken.

"Why further punish children, low-income families, and the aged and disabled because the Legislature did not approve borrowing gas tax revenue?" said Frank Mecca, executive director of the County Welfare Directors Association of California.

Once Schwarzenegger signs the budget, his finance team is expected to begin briefing the state treasurer and controller, creditors and analysts on how the latest spending plan will impact day-to-day cash flow.

The governor and lawmakers are hoping their latest plan provides the assurance lenders need for the state to take out loans and stop issuing IOUs to thousands of vendors. Representatives for the treasurer and controller said it would take a few more days after that to assess the state's borrowing needs and decide whether California can stop issuing IOUs.

Matt Fabian, a bond analyst at Municipal Market Advisors, based in Concord, Mass., said the plan was filled with accounting tricks and will likely do little to improve the state's poor credit rating.

Fitch Ratings placed at California's general obligation bond debt at BBB. Most states have a AAA or AA rating.***

OpinionPutting California back togetherThe state's Constitution needs a rewrite -- and the federal Constitution should be the model.By Tom Karako July 26, 2009 If this year's budget quagmire in Sacramento has you thinking there must be a better way, there is. To the extent that California is ungovernable today, it is partly because its legislative and executive branches are too weak and dysfunctional to resist entrenched special interests and non-elected bureaucracies. Fixing these problems requires constitutional change. It won't be easy, but the time has come to do it.

Over the last 130 years, California's Constitution has assumed the size of a textbook. The ease of amendment by initiative and referendum has produced endless gimmicks that diffuse accountability, confuse the public and produce thoroughly dysfunctional governance. People from across the political spectrum are calling for a constitutional convention.

If Californians do rewrite the Constitution, it should be revised to resemble more closely the concise federal Constitution: more responsible legislators and executives, stronger control of the bureaucracy and less direct democracy.

Of the many reforms being circulated, the Founding Fathers might approve these six.

Part-time Legislature: Forty-three states have part-time legislative sessions, and California should too. Freed from a yearlong legislative cycle, legislators would spend less time conspiring to make government increasingly complicated and intrusive, and more time in their districts meeting constituents. A part-time Legislature does not mean a part-time government. The execution of laws is constant, but the making of those laws can be done in advance.

A part-time Legislature should not be a "citizen legislature" resembling jurors who legislate as a kind of hobby. With the economy and geography of a small nation, California merits professional legislators to master the job we hire them to do. Salaries should remain the same, lest legislators be limited to the affluent, the corrupt and the amateur.

A spending cap similar to Gann would again be prudent. If it resulted in a surplus, extra revenue could be returned to taxpayers or saved in a rainy-day fund, provided it could not be too easily raided by legislators.

Two-year budgeting cycle: The Legislature should be restricted to figuring out a budget one year, and only in the second year could it consider other legislation.

Eliminate the two-thirds supermajority requirement for budgets: A more controversial but necessary reform would be to reduce the two-thirds supermajority vote to pass state budgets, while retaining that requirement for tax increases. The current system, requiring two-thirds for both, has diffused responsibility without protecting the state from excessive spending. If voters want to give a clear majority of their representation to one party, let the majority prevail -- and let the people judge the consequences. Only three other states require a supermajority for budgets, but 15 require a supermajority to raise taxes.

Unified executive branch: When Americans elected Barack Obama, he got to fill his Cabinet not with a hodgepodge of John McCain and Obama appointees working at cross purposes but with nominees who would implement the president's policies. Similar unity would improve government in a state as large as California.

It is dysfunctional to have executive officers separately elected and in competition with one another, as are many executive officers in California.

The governor should also have greater latitude in firing and controlling non-elected bureaucrats and public employee unions that pursue their own agendas at taxpayer expense.

Repeal ballot-box budgeting: Budget-making is a complicated process that involves priorities and trade-offs. It is not well-suited to direct democracy, when the people can only register an up-or-down vote.

California's decades of ballot-box budgeting has helped to produce a monstrous Constitution, with mandates for specific amounts of spending that inevitably tie the hands of the Legislature and limit flexibility.

The need for flexibility was seen when Senate leader Darrell Steinberg (D-Sacramento) offered up two of his favored programs, in Propositions 1D and 1E on the May ballot, redirecting their surplus billions to pay bills from the general fund. That would have saved the state $1 billion this year alone. But voters' anger at Proposition 1A's tax increases understandably doomed 1D and 1E, precluding nuance.

A better system would be to repeal all past ballot-box budgeting and put the programs under the general fund. Legislators would be able to set priorities, and the people would judge the results.

The genius of representative government, James Madison wrote, is excluding the people in their collective capacity from the direct business of governing. Hand the task of budgets back to our elected representatives, the ones we hired to make these hard decisions.

California needs constitutional reform before we can expect sustained fiscal reform. Whether that comes from a package of initiatives or a constitutional convention, it should focus on strong, responsible political institutions and draw on the wisdom of the U.S. Constitution.

August 5, 2009My suggegstion, first to be released should be those for pot "crimes". Indeed criminalizing drug use is a great foolishness IMHO.===================

California Prisons Must Cut Inmate Population

By SOLOMON MOORELOS ANGELES — A panel of federal judges ordered the California prison system on Tuesday to reduce its inmate population of 150,000 by 40,000 — roughly 27 percent — within two years.

The judges said that reducing prison crowding in California was the only way to change what they called an unconstitutional prison health care system that causes one unnecessary death a week.

In a scathing 184-page order, the judges said state officials had failed to comply with previous orders to fix the prison health care system and reduce crowding.

The judges left it to state officials to come up with a specific plan within 45 days, saying there was “no need for the state to release presently incarcerated inmates indiscriminately in order to comply with our order.” They recommended remedies including imprisoning fewer nonviolent criminals and reducing the number of technical parole violators.

The order is the largest state prison reduction ever imposed by a federal court over the objection of state officials, legal experts said.

It comes as the state has emerged from a long battle to close a $26 billion budget gap. The latest budget includes severe cuts to social welfare programs, schools and health care. The governor planned to slash spending by reducing the prison population by 27,000 inmates, but law enforcement and victims’ rights groups stopped that.

Attorney General Jerry Brown said in a telephone interview Tuesday that he intended to appeal the ruling. “Eventually, we’re going to have to go to the Supreme Court because I think the California prisons are spending about $14,000 per year per inmate,” Mr. Brown said, adding that the changes the judges ordered would cost more money, which the state does not have.

The special three-judge panel described a chaotic system where prisoners were stacked in triple bunk beds in gymnasiums, hallways and day rooms; where single guards were often forced to monitor scores of inmates at a time; and where ill inmates died for lack of treatment.

“In these overcrowded conditions, inmate-on-inmate violence is almost impossible to prevent, infectious diseases spread more easily, and lockdowns are sometimes the only means by which to maintain control,” the panel wrote. “In short, California’s prisons are bursting at the seams and are impossible to manage.”

Mr. Brown, who is raising money for a possible run for governor, said that some sort of settlement might be negotiated, but he added that he did not believe the court has the authority to cap the state’s prison system.

“California is facing real financial challenges and at the same time the court is ordering standards of care that exceed the standard required under the Constitution,” he said.

The case began as the result of class action lawsuits addressing inadequate medical and mental health care in the prison system. Those lawsuits were resolved years ago. The medical care case ended up with a federal receiver overseeing the system, and the mental health care case with a special master.

“It’s an extraordinary form of federal involvement,” Kara P. Dansky, the executive director of the Stanford University Criminal Justice Center, said of the ruling. “I’m not aware of any other case in which a federal court has entered a prison release of this magnitude over the objection of a state defendant.”

Such federal interventions have become increasingly rare under the Prison Litigation Reform Act, which restricts inmates’ access to courts and prohibits federal courts from imposing population caps on prisons except as a last resort.

Prison reform advocates said Tuesday that the state would probably lose any appeal of the reduction order.

“These are cases that have been going on for more than 15 years,” said David Fathi, the director of the United States program for Human Rights Watch. Mr. Fathi added, “The record in regard to constitutional violations is massive, and the judges have tried other less intrusive remedies before.”

Although the state spent millions of dollars on court-ordered changes, the judges ruled Tuesday that the system still violates the Eighth Amendment of the Constitution, which prohibits cruel and unusual punishment.

Gov. Arnold Schwarzenegger has shifted between supporting the court-ordered changes and, as state deficits grew and political pressures intensified, fighting them. In June, Mr. Schwarzenegger reneged on a deal with the federal receiver that would have provided $3 billion to build two prison hospitals and renovate other facilities to create 5,000 beds for ill inmates. An earlier plan was for the state to pay $8 billion for 10,000 prison hospital beds.

The governor has also pushed his own prison construction plan and a parole overhaul as ways to reduce prison crowding and to fix inmate health care services without federal intrusion.

But the court pointed out on Tuesday that the state had not committed enough money toward the governor’s prison construction plan and that even if that money was provided, it would take years for the state to build its way out of the overpopulation crisis.

The judges on the panel were Stephen Reinhardt of the United States Court of Appeals for the Ninth Circuit and two Federal District Court judges from California, Lawrence K. Karlton and Thelton E. Henderson.

Collecting nearly $318,000 a year, the former head of Los Angeles' Department of Water and Power tops a list of 841 city pension recipients paid six-figure benefits, according to newly obtained records.

And, like many of the retirees, former DWP General Manager Ronald Deaton will be paid more beginning this summer -- boosting his annual retirement pay to more than $327,000 -- because of annual cost-of-living increases, records and interviews show.

New DWP pension data provide a fuller picture of the city's largest retirement packages at a time when City Hall is cutting services, the public is being hit with recession-driven tax increases to cover government budget shortfalls and rising public pension costs are under close scrutiny.

The Times previously reported that nearly 600 pensioners received $100,000 a year from the city's police, fire and general government retirement plans. The new data from the city's utility adds close to 250 names to the list, which includes retirees or, in some cases, beneficiaries.

Former DWP Assistant General Manager Frank Salas ranks second on the list, receiving about $290,000 a year.

Councilman Bernard C. Parks, a former Los Angeles police chief and head of the city's budget committee, is third.

The Times reported in May that Parks, 65, who has publicly warned about soaring payroll and pension costs, received $265,000 a year in retirement payments on top of his $178,789 council salary.

With a cost-of-living adjustment that took effect this month, Parks' pension has grown to $273,000 annually, roughly 10% more than his final pay as police chief, records show.

In addition, Parks, who is serving a second four-year council term, is participating in a civilian pension plan as a councilman, officials confirmed. That could add tens of thousands of dollars per year to his total city retirement income.

Parks' eligibility for a second pension -- and the amount -- would depend on how long he serves, his final salary and his age when he collects it, officials said.

Parks did not respond to an interview request.

City employee groups stress that six-figure retirees like Parks and Deaton are a small fraction of pensioners. Most collect far less, typically about $40,000 for civilian retirees and close to $50,000 for former police officers, firefighters and DWP workers. Also, officials note that career city employees don't normally receive Social Security payments, which also are adjusted yearly to offset increases in the cost of living.

"For the most part, the high pensions go to people who are not in the unions. They are basically senior management folks," said Barbara Maynard, spokeswoman for a coalition of city unions. "The vast majority of those we represent are frankly rank-and-file, hardworking people with modest pensions."

Still, the recession, the erosion of private-sector retirement benefits, and state and local budget cuts have given critics fresh ammunition to attack what they contend are overly generous government pensions.

"We should never, ever design a pension formula that provides more for a person when they retire than when they are working. It defies any common sense," said Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility, a nonprofit pension reform group headed by former GOP Assemblyman Keith Richman.

"But that's what we're finding" in some school systems and public safety agencies, Fritz said.

The group has publicized more than 5,000 names of state and local government pension recipients across the state collecting more than $100,000. Fritz said high-end public pensioners are worthy of attention. They include "people who were advising, in closed-door labor negotiations . . . negotiating benefits," she said. "These are the ones that made this whole thing happen."

Deaton was a well-regarded executive who served in key city positions, including chief legislative analyst, over more than 40 years. He said his benefits flow from a bargain he struck in the 1960s, when he walked into the DWP as a young junior administrative assistant. His pension takes into account his long service, career advancement and final salary (about $345,000), he noted.

"It was a deal made at the beginning of my career, not the end of my career," he said.

"Because you happen to get up to the top, I don't think you should be paid any differently."

A looming jump in city pension costs, attributed largely to sharp declines in pension investment values, has prompted a major review of retirement plans at City Hall. One recent projection warned that the share of the city general fund receipts required by two large pension funds would jump from 15% this year to 33% in 2013-14.

That would amount to an increase of nearly $1 billion, making pension contributions the fastest-growing area of city spending, said Asst. City Administrative Officer Tom A. Coultas, an employee relations specialist.

"It's perfectly clear from our standpoint, design changes need to be made," he said. "The question is how much of a correction is necessary" to ensure that pension programs can be sustained.

Recent market gains and accounting changes have eased the financial blow somewhat. And a plan to cut 2,400 city jobs also could help control costs. Still, recommendations for pension changes, expected to be sent to the mayor and City Council in September, will probably include some combination of reduced benefits and adjusted contribution rates for many new city employees, Coultas said.

There are legal and practical limitations to the changes that could be made. Court rulings generally protect benefits provided to retirees and promised to current employees, officials say. Altering pension plans involves negotiations with unions and, in some cases, voter approval.

Ironically, Parks, one of City Hall's more fiscally conservative voices, has been among those warning about rising pensions.

During the recent budget battle, Parks said that soaring payroll and pension costs have brought the city to a "breaking point." Without swift and significant structural changes to city finances, he wrote on his website, the city could risk insolvency.

Maynard, the union spokeswoman, said labor groups would work with city leaders to craft a solution. "Clearly, there is a problem."

The larger issue, she argued, is how vulnerable retirement accounts have become for many Americans, particularly in the private sector.

"We need to lift all workers up to make sure they have a modest, secure pension. Not take away from those who do."

The state's rate jumps to 11.9% in July as the U.S. rate declines to 9.4%. Job losses have an outsize effect on Latinos in the state as work in the construction and hospitality sectors vanishes.

By Alana Semuels

August 22, 2009

California's jobless rate reached a fresh post-World War II high in July, climbing to 11.9%, a sobering reminder that though the nation's deep downturn may be nearing its end, the state's employment woes are far from over.

Golden State employers cut their payrolls by 35,800 jobs in July, according to figures released Friday by the state Employment Development Department. That's a significant improvement over monthly losses that averaged 76,000 over the first half of the year.

Still, July's numbers were worse than some analysts had expected, rising from 11.6% in June and led by declines in trade, construction and manufacturing. Even with the rise in unemployment here, however, a consensus is growing that the worst of the recession may be over.

Federal Reserve Chairman Ben S. Bernanke on Friday declared the economy to be "leveling out," and the National Assn. of Realtors reported a sharp rise in July home sales. Wall Street responded by pushing the Dow index to its highest point since November.

Still, a robust recovery appears unlikely, and some regions of the country are expected to suffer fallout from the bursting of the housing bubble for years to come. That includes California, which is now tied with Oregon for the fourth-highest unemployment rate in the nation, behind Michigan, Rhode Island and Nevada. The U.S. unemployment rate is 9.4%, down from 9.5% in June.

California's battered construction and housing industries, long pillars of the state economy, remain troubling sources of weakness. Over the last year, the state has lost 760,200 jobs, nearly 1 in 5 of them in construction. White-collar workers have likewise suffered from the housing crash as thousands of jobs in banking, mortgage processing and real estate sales have vanished.

The number of new-home permits issued in July fell 47.4% from a year earlier, according to the Construction Industry Research Board.

"We've disproportionately benefited from two sectors, construction and financial services," said Esmael Adibi, an economist at Chapman University.

"The demise of these two sectors has hurt us disproportionately."

That's had an outsize effect on California's 13.5 million Latinos, who are heavily concentrated in the building trades. In 2007, Latinos made up 47% of the construction workforce in the state, according to the U.S. Equal Employment Opportunity Commission.

In July, California's Latino unemployment rate hit 12.7%, dwarfing the white jobless rate of 9.5%, according to the U.S. Bureau of Labor Statistics. Black unemployment remains the highest in the state at 14.2%. But Latino joblessness has grown much faster. In July 2007 the Latino unemployment rate stood at just 5.9%, compared with 9.2% for blacks and 4.8% for whites.

Last month, 805,000 California Latinos were jobless. That's up 127% over the last two years. The number of unemployed whites in the state grew 103% over the same period, while the number of out-of-work African Americans rose 66%.

"You really begin to see desperate times for lots of Latino families throughout California," said Vince Vasquez, a senior policy analyst with the National University System Institute for Policy Research.

East Los Angeles resident Robert Gonzales said he was struggling to support his three children after his job as an industrial painter disappeared a year ago when his employer moved to Ohio.

When he first lost his job, he was able to find odd carpentry and plumbing work, but his phone has stopped ringing. Now, he can barely pay the taxes on the home he owns, and he struggles to put food on the table.

"I come to the EDD every day, and nothing happens," he said, standing outside the workforce development office in East L.A., where the computers had malfunctioned. "They say, 'Don't call us, we'll call you.' "

A large proportion of Latinos also are in hospitality, nondurable-goods manufacturing and warehousing, said Jerry Nickelsburg, senior economist for the UCLA Anderson Forecast. As consumer demand for products worldwide shrinks, companies responsible for making and shipping goods are jettisoning employees.

That leaves people like Juan Cortez, a 33-year-old from Monterey Park, scrounging for work. He was laid off from his job as a shipping clerk nine months ago, moved back in with his parents, sold his Chevy Tahoe and now is hoping to get a callback about a job as a forklift operator.

He and a few friends have been talking about moving back to Mexico, he said, where it's cheaper to live and the job prospects seem better.

"There's jobs there," he said. "There's no jobs in L.A."

The seasonally adjusted unemployment rate in Los Angeles County also reached 11.9% in July, up from a revised 11.2% in June. The government sector was especially hard hit as state budget cuts took their toll, with the number of jobs dropping 4.6% from June. Education and health services was the only sector in the county to employ more people this month than it did in July of last year.

The Riverside-San Bernardino-Ontario area felt the most pain in the Southland, with the unemployment rate rising to 14.3% in July, up from a revised 13.9% in June. A major center for warehousing and distribution, the area has shed 20,100 jobs since July 2008 in the trade, transportation and utilities sector. The area's construction sector lost 20,700 jobs over the same period.

The recession has been particularly hard on less-educated Californians. People without a high school diploma had a 16.8% unemployment rate in June compared with a 10.8% unemployment rate in June 2008.

That's plagued the region's Latinos, many of whom have less schooling, fewer linguistic skills and spottier community connections than people who have lived in the country for generations, policy analyst Vasquez said.

"It's about where you went to school, it's about having relationships, and those are the things that really affect Latinos in a situation like this," he said.

About 44.5% of Latino adults in the state do not have a high school diploma, compared with 20% of the state overall, and 6.8% have a bachelor's degree, compared with 18.7% of the state overall, according to U.S. Census estimates.

After being laid off from her job as a receptionist at an oncology office in June, 22-year-old Denise Muralles decided it was time to hit the books. She's taking classes at Los Angeles Community College in the fall, she said, and hopes to eventually study physiology.

Her mother, a secretary, has been adamant that Muralles not follow in her footsteps.

"She really wants me to get an education," she said. "She doesn't want me to be a secretary."

Economists predict that the unemployment rate in the state will continue to climb. Job growth doesn't usually begin until about six months after the end of a recession, economist Adibi said. He expects the unemployment rate to keep rising into early 2010.

Still, there is some reason to be optimistic, economists said. The rate of job losses in the state is slowing.

Two categories, professional and business services and leisure and hospitality, added jobs last month. Employment in other sectors, including financial activities and natural resources and mining, were stable, which economists say is a good sign.

Abstract of a study exploring the regulatory costs imposed on CA citizens. Those costs are pretty astounding.

COST OF STATE REGULATIONS ON CALIFORNIA SMALLBUSINESSES STUDYEXECUTIVE SUMMARYABSTRACTThis study measures and reports the cost of regulation to small business in the State ofCalifornia. It uses original analyses and a general equilibrium framework to identify andmeasure the cost of regulation as measured by the loss of economic output to theState’s gross product, after controlling for variables known to influence output. It alsomeasures second order costs resulting from regulatory activity by studying the totalimpact – direct, indirect, and induced. The study finds that the total cost of regulation tothe State of California is $492.994 billion which is almost five times the State’s generalfund budget, and almost a third of the State’s gross product. The cost of regulationresults in an employment loss of 3.8 million jobs which is a tenth of the State’spopulation. Since small business constitute 99.2% of all employer businesses inCalifornia, and all of non-employer business, the regulatory cost is borne almostcompletely by small business. The total cost of regulation was $134,122.48 per smallbusiness in California in 2007, labor income not created or lost was $4,359.55 per smallbusiness, indirect business taxes not generated or lost were $57,260.15 per smallbusiness, and finally roughly one job lost per small business. This study provides themost comprehensive and complete analysis of the total regulatory burden in California.

No state's economy, with the exception of Michigan, has careened into a deeper ditch than California in this recession. The state now has the fourth-highest unemployment rate (12.2%), the third-highest rate of mortgage foreclosures, and for two years has had the biggest budget deficit in the history of the 50 states. So it is very good news that yesterday Governor Arnold Schwarzenegger's bipartisan tax commission recommended a road out of this mess.

.The heart of the new plan is to broaden the tax base and slash tax rates on personal income, business and sales. California currently ranks at or near the top in all three categories. This has, paradoxically, contributed to the state's inability to pay its bills by driving men and women from the state and leading to revenue boom and bust. We don't agree with everything in this report, but there's no question it would be a huge improvement over the current tax code in its economic incentives, simplicity, revenue stability and fairness.

The commission hasn't recommended a pure flat tax, but something much closer to it. As shown in the nearby table, the income tax rate, which currently tops out at 10.55%, would be chopped to a more reasonable (but still high) 7.5%. (The plan doesn't eliminate the one-percentage-point millionaire income tax surcharge, alas.) Because about 70% of small businesses pay the personal California income tax, the commission found that California's high rate is driving enterprises to the likes of Nevada, Texas and Idaho. The number of tax rates is reduced to three from seven (we prefer one), and thanks to the elimination of credits and loopholes, the new California tax form would fit on a postcard.

Even more impressive is the recommendation to eliminate the corporate income tax and the 5% of the sales tax that contributes to the general fund. These would be replaced by a broad-based Business Net Receipts Tax of no higher than 4%. This taxes businesses on what they produce, minus their costs of purchases from other firms. This is similar to a value added tax.

One benefit of this new levy is that it creates a level playing field among industries and reduces tax favoritism based on the power of lobbyists in Sacramento. The greater virtue is that this tax would exempt all California investment and capital income from taxation. (Michael Boskin and John Cogan offer more details nearby.)

The commission—chaired by California businessman and former U.S. Treasury official Gerald Parsky—also calls for a rainy day fund by requiring annual revenues above a 10-year rolling average to be put into a reserve fund rather than being spent.

One danger is that the revenue-generating efficiency of the Business Net Receipts Tax would eventually increase the overall tax burden in California. To protect against this, the commission calls for a permanent cap on the BNRT at 4%. Some business groups don't like the new business tax because it means they'd have to pay tax even if they don't make money. But a sales tax has that same feature.

A higher rate would defeat the purpose of this corporate tax reform, which by eliminating the corporate income tax would go far to restore the state's competitiveness with other states, as well as Japan, China and Europe. Conservatives should insist that the current two-thirds vote requirement in the legislature to raise taxes applies to this new business tax to protect against jacking up the rate to grow the state government.

Part of Mr. Parsky's achievement here is political, because he managed to convince a bipartisan majority of nine of the commission's 14 members to endorse its proposals. This includes notable liberal Christopher Edley, while Democrats like Senator Dianne Feinstein and former Governor Gray Davis have also praised much of the plan.

They may be motivated by the reality that California's steeply progressive tax rates are defeating the purposes of progressive government. To wit, only a growing economy can create opportunity for the middle class and enough state revenues to finance schools and health care for the poor. A tax code that depends on 1% of taxpayers, 144,000 filers, to finance 50% of state income tax revenues has proven to be unsustainable, notwithstanding the liberal dogma that says tax rates don't matter.

Mr. Schwarzenegger will call for a special session of the legislature to approve this plan later in October, so let the debate begin. The only painless way to rebalance the Golden State's $150 billion annual budget is to expand the tax base by luring capital and jobs back to the West Coast. That's what happened when California passed Proposition 13 to cap its property taxes in 1978. If the legislature fails to act, as it probably will, then the Parsky plan should become central to next year's election debate over how to revive this once dynamic state.

By MICHAEL J. BOSKIN AND JOHN F. COGAN For many decades California residents enjoyed a rising standard of living, an outstanding education system, and unprecedented upward mobility. Yet now, despite state leadership in technology, agriculture and entertainment, California's economy radically underperforms. The unemployment rate, 12.2%, is the nation's third highest. Residents are leaving the state—144,000 more than entered last year—for better opportunities elsewhere. And the state's bond rating is dead last.

While uncontrolled spending, excessive regulation and litigation have helped create a dismal business environment, the tax system is central to the state's economic woes. The top personal income tax rate (also levied on capital gains), the sales tax rate, the corporate tax rate, and the gas tax are all at or near the highest of any state. And the top 1% of the state's income earners pay almost half the income taxes: Thus the state experiences boom-bust cycles of exploding revenues and spending in the good times, followed by a collapse in revenues and emergency retrenchment in recessions. Ironically, California's progressive tax and spending policies now threaten the state's ability to fund everything from parks to prisons, education to health.

The excess spending during booms is never entirely cut back during the busts. Instead, the state also raises taxes and borrows temporarily. If spending had increased at the rate of population and inflation since 1996, recession-level revenues plus reserves would now be more than sufficient to balance the state budget, which is now back in the red, despite temporary tax hikes and spending cuts.

Recognizing the problem, Republican Gov. Arnold Schwarzenegger and Democratic legislative leaders Darrell Steinberg and Karen Bass appointed a bipartisan Commission on the 21st Century Economy in December 2008 to provide recommendations for a reformed tax code that would be far less volatile and substantially more competitive and pro-growth. While the two of us believe California needs to control and reform state spending, and to reduce as well as reform state taxes, we and the commission's other appointees were limited by the executive order creating the commission to changes on the tax side of the state budget that would neither raise nor lower the state's revenues on average over the business cycle.

The commission's majority report recommendations were made public yesterday. They include a sweeping overhaul of the personal income tax code that reduces tax brackets to two from six; eliminates all deductions and credits other than for charity, mortgage interest and property taxes; and cuts the top statutory income tax rate to 6.5% from 9.3%. Most taxpayers would receive a 25%-30% tax cut and all would pay less. The commission also recommends abolition of the state's corporate income tax and the elimination of most of the state sales tax that finances the state's general revenue fund (as opposed to special funds for transportation, etc.). Finally, to replace the lost revenue, the commission recommends a broad-based, low-rate state value-added tax (VAT), collected on business net receipts (revenues less purchases from other businesses, including immediate expensing of capital), that is capped at 4%.

These reforms will reduce the volatility of state revenues by 40% (using commonly accepted measures) mostly by reducing the reliance on personal and corporate income taxes, and moderate the current tax code's extreme progressivity. They also will result in a $7 billion net tax cut per year for Californians without raising taxes on any income group, as some of the new VAT would be borne outside the state and more of Californians' taxes would be deducted against federal taxes.

Proposals to scale-down existing taxes and replace revenues with a new tax raise legitimate concerns. The same political process that erodes the base and raises rates for income taxes might be repeated for a VAT. Such taxes have been used to grow government (for example, in Western Europe) with new taxes added without reducing others.

Some protection against this outcome is provided by California's wise constitutional requirement for a two-thirds vote for the budget and tax increases, and by the commission's recommendation of immediate abolition of the entire corporate income tax as the new business tax begins phasing in. A hard spending cap would be still better.

California can once again lead the nation, this time in moving away from ever-higher personal and corporate tax rates and excessive roller-coaster spending. If not, California and then the nation will lose the dynamism, growth and opportunities for rising living standards that once were the state's hallmark and crowning achievement.

Mr. Boskin is a senior fellow at the Hoover Institution and a professor of economics at Stanford University. Mr. Cogan is a senior fellow at the Hoover Institution and a professor of public policy at Stanford University. The commission's report is available online at www.cotce.ca.gov.

By SHIKHA DALMIA, ADRIAN MOORE AND ADAM B. SUMMERS With the Golden State still struggling to balance its books, politicians from both sides of the aisle have come up with a nifty way to avoid responsibility for the mess: Blame the voters.

Gov. Arnold Schwarzenegger, a Republican, summed it up for his fellow pols recently by telling a reporter: "All of those propositions tell us how we must spend our money. . . . This is no way, of course, to run a state." State Senate President Pro Tem Darrell Steinberg, a Democrat, has made similar comments in denouncing "ballot-box budgeting."

For decades, state officials have habitually proposed deep cuts to the most popular programs unless voters agree to higher taxes. Tired of being manipulated, voters have used the ballot initiative to put some programs off-limits.

Nevertheless, a 2003 analysis by John G. Matsusaka, president of the Initiatives and Referendum Institute at the University of Southern California, found that no more than a third of California's appropriations that year were locked in by voter initiatives so stringent that legislators couldn't override them. Most of the appropriations—about $30 billion in 2003—were for Proposition 98, which passed in 1988 and mandates funding for K-12 education.

Even this overstates the case against ballot-box budgeting. K-12 spending has remained remarkably stable at around 40% of the budget pre- and post-Prop. 98. Today, California is 24th among the 50 states in terms of the percentage of its general funds it devotes to K-12. This suggests that education spending is not grossly out of line. Prop. 98 aside, Mr. Matsusaka found that only about 2% or 3% of California's budget is frozen as a result of ballot initiatives.

Mr. Matsusaka's analysis was affirmed last month by the Legislative Analyst's Office, a nonpartisan outfit that advises the legislature. It looked at all the restrictions on the state's budget—not just those imposed by ballot initiatives—and concluded that: "Despite these restrictions, the legislature maintains considerable control over the state budget—particularly over the longer term."

So what happened this year that got the politicians and others so upset with ballot-box budgeting? California faced a $42 billion budget deficit. After a round of spending cuts and $12 billion in new taxes, the governor and the legislature called for a special election and placed a number of propositions on the ballot that would have increased taxes an additional $16 billion and allowed for billions more in borrowing and fund shifts. Voters shot those measures down in May.

After much bickering, lawmakers nearly closed the deficit with severe cuts, but left the governor with a $1 billion deficit to close on his own. He did so by using his line-item veto to strike, among other things, $500 million for in-home care, transportation assistance and other social services.

Now the governor is being sued by a whole host of special-interest groups, including a coalition of organizations representing the disabled. Those organizations (along with Mr. Steinberg, who has filed a separate suit), claim that the governor cannot constitutionally cut spending beyond what the legislature has already cut. The suits ignore that the governor is bound by a constitutional requirement that the state's budget be balanced—but in any case have nothing to do with spending that is mandated by ballot initiatives.

In looking for the causes of the state's budget mess, a good place to start is with the unionized public employees, who have filed their own lawsuit against the budget. Public union ranks have grown a whopping 37% since 1990 and consume about one-third of the $85 billion budget in wages and benefits. California also faces a total unfunded future liability of about $110 billion for pensions and health-care benefits. Still, the state's chapter of the Service Employees International Union and other unions are suing the state because their members are being asked to take a few days of furlough to save the state about $1.5 billion. The unions say this is an illegal pay cut. Regardless of whether it is, ballot initiatives are not the issue.

True enough, some lawsuits are driven by ballot initiatives. The California Redevelopment Association is attempting to stop the state from raiding $2 billion in local redevelopment funds. Sixty years ago voters passed a constitutional amendment to prevent such raids, but the state government has found ways around that prohibition. But restoring the will of the voters in this case is essential for sound budgeting, because local development funds are used to pay for bonded contracts for roads and other infrastructure projects. If the state is allowed to grab these funds, the credit ratings of cities and counties will plunge and their borrowing costs will rise.

Whatever the wisdom of ballot initiatives that protect some programs from cuts, they are not the root cause of California's fiscal disaster. That cause is the government's spending addiction. From 1990 to 2008, California's revenues increased 167%, but total spending soared 181%.

This problem won't be tamed by letting lawmakers get their hands on more tax dollars by scrapping Proposition 13, which limits property taxes, as Mr. Steinberg and other lawmakers have suggested. Rather the solution is to restore the Gann Spending Limit that restricted state spending increases to population growth and inflation and required that anything left over be returned to taxpayers.

Such restrictions kept the state from slipping into a cycle of fiscal chaos in the 1980s by checking government expenditures and forced lawmakers to rebate $1.1 billion in excess revenue in 1987. But voters diluted Gann in 1990, when they passed Proposition 111, exempting infrastructure projects, disaster spending and a number of other state expenditures from the spending limit.

Prop. 111 freed politicians in Sacramento to use the revenues that gushed in during the dot-com boom and housing bubble to grow the state budget to unsustainable levels. If Gann hadn't been neutered, a Reason Foundation study found in February, California would have been rolling in a $15 billion surplus this year.

latimes.comCalifornia to withhold a bigger chunk of paychecksThe amount goes up 10% on Sunday as Sacramento borrows from taxpayers. Technically, it's not an income tax increase: You'll get the money back eventually.By Shane Goldmacher and W.J. Hennigan

October 31, 2009

Reporting from Los Angeles and Sacramento

Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners -- holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.

Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

But with rising gas costs, depressed home prices and double-digit unemployment, the state's added reach into residents' regular paycheck isn't sitting well with many.

"The state's suddenly slapping people upside the head," said Mack Reed, 50, of Silver Lake. "It's appalling how brash that is."

Brittney McKaig, 23, of Santa Ana said she expects the additional withholding to affect her holiday spending.

"Coming into the holidays, we're getting squeezed anyway," she said. "We're not getting Christmas bonuses and other perks we used to get. So it all falls back on spending. The $40 gift will become a $20 gift."

The extra withholding may seem like a small amount siphoned from each paycheck, but it adds up to a $1.7-billion fix for California's deficit-riddled books.

From a single taxpayer earning $51,000 a year with no dependents, the state will be grabbing an extra $17.59 each month, according to state tax officials. A married person earning $90,000 with two dependents would receive $24.87 less in monthly pay.

California will probably continue to collect the tax at a higher rate for many years -- or find an additional $1.7 billion to slice from a future budget, an unlikely occurrence. All workers who have state taxes withheld will see their paychecks shrink.

"Many families are sitting at their kitchen table wondering how they're going to make ends meet," said state Sen. Tony Strickland (R-Thousand Oaks). "At the same time, the state of California is taking a no-interest loan."

The provision is one of numerous maneuvers state lawmakers and Gov. Arnold Schwarzenegger approved in the summer to paper over the state's deficit. Many of the changes, including the extra withholding, were little noticed outside of Sacramento.

Savvy taxpayers can get around the state's maneuver by increasing the number of personal withholding allowances they claim on their employer tax forms, said Brenda Voet, a spokeswoman for the state's Franchise Tax Board.

"People can get out of this," she said, noting that most people would have to change their allowances through their employers. California's budget leaders are banking on the hope that most won't.

The increase is coming at a bad time for store owners, many of whom depend on the holiday shopping season to keep their businesses alive.

"I don't think there's any question it's going to impact consumers' spending," said Bill Dombrowski, president of the California Retailers Assn. "Any time you reduce people's disposable income, there's going to be a negative effect on the retail sector."

But Stephen Levy, director of the Center for Continuing Study of the California Economy, wasn't so sure.

"It's having a relatively small impact on people's income," Levy said, pointing out that many families will receive only $12 to $40 less each month.

Yet Erika Wendt, 28, of San Diego said she already lived on a tight budget: She rides her bike to work, for instance, to save on gasoline and parking costs.

"I am frustrated as this directly impacts my weekly budget -- what groceries I buy, how much I drive and can spend on gas," she said. "Now money will just be tighter, and I'm not sure where else I can cut back."

The extra withholding comes in addition to tax hikes the state enacted this year.

In February, state income tax rates were bumped up 0.25 of a percentage point for every tax bracket. The dependent credit was slashed by two-thirds. The state sales tax rate rose 1 percentage point. The vehicle license fee nearly doubled to 1.15% of a car's value.

Lawmakers and the governor also approved deep cuts to schools, social services and prisons to fend off one of the steepest revenue losses in California history.

Temporary budget bandages, such as the increase in withholding, were included at several points this year to avoid higher taxes and deeper cuts, said H.D. Palmer, a spokesman for the state Department of Finance.

Sacramento, meanwhile, is awash in red ink again. The state controller recently said revenue in the budget year already had fallen more than $1 billion short of assumptions. Outsize deficits are projected for years to come.

Such temporary measures as the withholding tax increase don't really fix the budget gap, "they just more or less hid it," said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. "I call it a fraud."

When Carly Fiorina sat down to speak with me recently, I was briefly taken aback. The former CEO of Hewlett Packard and current candidate for U.S. Senate from California was sporting a close-cropped, salt-and-pepper hairdo. Having completed six months of treatment for breast cancer, the 55-year-old Ms. Fiorina has dispensed with the auburn wig she'd been wearing as her hair grows back.

She says her health is now fine, and that "after chemotherapy Barbara Boxer isn't that scary anymore," referring to the three-term Democratic incumbent she wants to unseat in 2010. She laughs when I suggest her new 'do may get her a hearing in precincts like Berkeley and San Francisco. On a more serious note, she says that "in these hard times, a lot of people across the spectrum will listen to my message—that California can only recover if we encourage economic growth and restrain spending and job-killing regulation."

With a 12.5% unemployment rate, the Golden State is certainly in trouble. In 2007 alone, 260,000 Californians moved to states with more opportunity. The nonpartisan Tax Foundation says only New York and New Jersey have worse business tax climates. And a new Los Angeles Times poll found that more than half of California residents think the state's major problems won't fade as the economy recovers.

Ms. Fiorina is not shy in pointing out what's to blame. "The high tax, big government, regulatory regime we see in California is the current course and speed for where the nation is headed," she warns. "California is a great test case, a factual demonstration that those programs don't work." She notes that while state spending has significantly outstripped inflation in recent years, every year government services perform more poorly and it becomes harder to open a business. "I very much doubt Hewlett Packard could be founded today as a manufacturing company in California," she adds soberly.

There are signs California voters have had enough. After the legislature passed a huge $12.5 billion tax increase last February to plug the state's budget gap, it put a measure on the ballot to extend the tax hikes for two years. The tax failed by an almost 2-to-1 margin.

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Terry Shoffner .Voters may also be in the mood for new leadership. "I'm not a professional politician, I'm a problem solver," she emphasizes, contrasting her record with that of the 69-year-old Ms. Boxer. That record is fairly stark: By most measures, Ms. Boxer has been an unbending ideologue during her three terms, as illustrated by her 95% rating from the liberal Americans for Democratic Action in 2008.

Given the deep national recession and a state economy deep in the red, Ms. Fiorina is especially critical of Ms. Boxer's opposition to "virtually every trade agreement." Ms. Fiorina also chides Ms. Boxer for the latter's lockstep support for the public employee unions that she claims enjoy "outsized political influence" in California.

On the environment, Ms. Fiorina faults the senator for ignoring pleas from farmers to the U.S. Fish and Wildlife Service to restore water flows to California's Central Valley, which have been restricted by two controversial biological assessments by the government that asserted the local delta smelt was endangered: "I've seen the devastation and massive unemployment that [the water restrictions have] caused."

California's other Democratic senator, Dianne Feinstein, has called for an immediate third-party review of the federal conclusions. Ms. Fiorina notes that Ms. Boxer came into the Senate in 1993 at the same time as her more moderate colleague. "Since then, Dianne Feinstein has been far more productive while Barbara Boxer has been singularly ineffective for the people of California."

On the legislative front, Ms. Boxer chairs the Senate Environment Committee. Her clumsy bobbling of the cap-and-trade bill designed to address global warming has even been criticized by some of her fellow Democrats. Ms. Fiorina has a different take: "Thank goodness she's failed to pass that job-killer, but it shows how little she gets across the finish line."

Ms. Fiorina makes clear she takes the issue of climate change seriously. But she argues that global warming is best addressed through more innovation, new technology and energy efficiency, areas in which California has excelled. The scientific debate on the extent of global warming should continue, she says. Meanwhile, cleaner technologies such as nuclear power should be encouraged.

"We must take advantage of every source of energy," she emphasizes, and forthrightly tackles a taboo subject in a state that has restricted off-shore drilling since the 1969 Santa Barbara oil spill. "Technology has fundamentally changed the extraction of oil and natural gas," she says. That means California can protect the environment at the same time it opens up new areas of exploration.

Ms. Fiorina also is fascinated by the political potential of technology. "We need more transparency and accountability in government so that people know how their money is being spent," she says. "That means putting budgets online, putting legislation online." She's convinced that if citizens can play a greater watchdog role it will be easier to keep a check on higher spending and taxes.

In the midst of her enthusiastic comments about high-tech solutions to economic and political problems, Ms. Fiorina pauses to acknowledge that she's fully aware her six-year tenure as the head of HP will be used against her.

"Liberals will say I was let go by my board in 2005 and outsourced some jobs overseas," she says bluntly. "But I took the company through the worst technology recession in a generation and created jobs on a net basis. As for the outsourcing, the tax and regulatory climate made it almost impossible not to do that—which is why we have to change it." Ms. Fiorina claims subsequent revelations—that her successor and the board members who fired her were embroiled in an internal spying scandal—help vindicate her tenure as the first woman to head a Fortune 20 company.

But it's not just Democrats and liberals who will attack Ms. Fiorina. In a recent poll (with most voters undecided), she had only a narrow lead over Republican Chuck DeVore, a state assemblyman who criticizes her as the candidate of the party's establishment. He told reporters earlier this month that the fundamental issue is whether primary voters want "someone who epitomizes Reagan Republicanism or Rockefeller Republicanism."

To some that slam might seem a bit of a reach. Ms. Fiorina insists on her conservative bona fides. Her father was Joseph Sneed, a conservative law professor who served on the liberal Ninth Circuit Court of Appeals from 1973 until his death last year. His daughter says she inherited both his ability to work with those he disagreed with and his "common sense" views on issues.

Ms. Fiorina adds that she learned the values of hard work and entrepreneurship after she left Stanford University with a degree in medieval history and philosophy and was "unemployable." She worked as a secretary at a real-estate firm until she joined a management training program at AT&T in 1980. She rose to oversee marketing and sales for the largest division of Lucent Technologies before taking over HP in 1999.

"I will not run away from [conservative] values," Ms. Fiorina says, noting that she has signed the Americans for Tax Reform pledge against higher taxes and voted for Proposition 8 last year, which banned same-sex marriage in the state. On abortion, Ms. Fiorina says she is "proudly pro-life" and a strong opponent of taxpayer funding of abortions.

But her views also carry some nuance. She notes she created a strong program of domestic partner benefits while at HP. As for changing existing laws on abortion, she acknowledges, "I know, as a realist, that not everyone agrees with me. So the common ground we can find is how to reduce abortions."

An issue that will give Mr. DeVore some traction in a primary is that Ms. Fiorina says she "probably" would have voted to confirm Sonia Sotomayor, because most presidential Supreme Court nominees who are qualified deserve a presumption of support. One can argue with that position on substantive grounds, but it's probably smart politics in a general election given that California is 37% Hispanic.

Mr. DeVore has won backing from Rep. Tom McClintock, a conservative California hero, along with South Carolina Sen. Jim DeMint. But Ms. Fiorina is supported by stalwart Republican conservative Sens. Tom Coburn and James Inhofe from Oklahoma. She also has support from Maine's Republican moderate Sens. Susan Collins and Olympia Snowe.

Can a conservative win in California given the shellacking John McCain, for whom Ms. Fiorina was a top economic adviser, got in the state last year? Her crisp answer is yes, noting that "the timing is now against Boxer" because "Californians are worried about whether they will have a job along with ballooning federal spending and deficits." All recent polls show Ms. Boxer below the 50% support an incumbent should have. Last week's Rasmussen poll gave Ms. Boxer a 46% to 37% lead over Ms. Fiorina, with one in three voters holding a "very unfavorable" view of the Democratic incumbent.

Ms. Fiorina notes that ObamaCare is now supported by only half of the state's voters. This is a sign, she says, that voters increasingly recognize it will raise the cost of health-care premiums and fail to solve real problems in our health-care system.

She has also targeted the proposed federal guidelines restricting the frequency of mammograms on the basis of personal experience. Ms. Fiorina says she found her own breast cancer lump only two weeks after a clear mammogram, and if she had waited two years for another one her cancer might not have been detected. She said on CNN that the federal panel that approved the now-withdrawn recommendations had "no cancer specialists on it, and the panel was explicitly asked to consider cost, not simply science."

Ms. Fiorina recognizes she has a way to go to convince voters to elect a political newcomer, and she makes no excuses for her spotty voting record in recent years. But California has a long tradition of electing outsiders to statewide office—from Ronald Reagan to educator S.I. Hayakawa (to the U.S. Senate) to Arnold Schwarzenegger. In tough economic times, California may well be tempted to elect a former CEO who thinks the Congress needs common-sense people like herself.

The California Legislative Analyst’s Office recently reported that the State faces a $21 billion shortfall in the current as well as the next fiscal year. That’s a problem, a really big problem. My young son would say it was a ginormous problem. In fact, it may be an insurmountable problem.

Our governor and legislature used every trick in their books when they created the most recent budget. They even resorted to mandatory interest-free loans from the taxpayers. Now, they have no idea where to go. The Democrats have declared that they will not allow budget cuts. The Republicans will not allow tax increases. They have probably run out of smoke and mirrors, although their ability to engage in budget gimmickry is enough to make an Enron accountant blush. No one is considering raising revenues by increasing economic activity.

In my opinion, California is now more likely to default than it is to not default. It is not a certainty, but it is a possibility that is increasingly likely.

Then what?

Ideally, we’d see a court-supervised, orderly bankruptcy similar to what we see when a company defaults. All creditors, including direct lenders, vendors, employees, pensioners, and more would share in the losses based on established precedent and law. Perhaps salaries would be reduced. Some programs could see significant changes. This is distressing, but it is better than other options.

Unfortunately, a formal bankruptcy is not the likely scenario. There is no provision for it in the law. Consequently, absent framework and rules of bankruptcy, the eventual default is likely to be very messy, contentious and political.

Other states have defaulted. Nine states defaulted on credit obligations in the 1840s. Most of those states eventually repaid all of their creditors (see William E. English "Understanding the Costs of Sovereign Default: U.S. State Debts in the 1840s," American Economic Review, vol. 86 (March 1996), pp. 259-75.) Unfortunately, the examples in the 1840s are not much help in anticipating the impacts of a modern default. Circumstances are different, and things have changed, a lot.

We’re left with the question: what happens when California defaults?

The worst case would be the mother of all financial crises. According to the California State Treasurer’s office, California has over $68 billion in public debt, but the Sacramento Bee’s Dan Walters has tried to count total California public debt, including that of local municipalities, and his total reaches $500 billion. Whatever the amount, the impact of default could be larger than the debt amount would imply. Other states – New York, Illinois, New Jersey, for example – are in almost as bad shape as California, and they could follow California’s example. The realization that a state could default would shock markets every bit as much as when Lehman Brothers failed. Given the precarious state of our economy and the financial sector, another fiscal crisis would be disastrous, with impacts far beyond California’s borders.

What would a California default look like? In a sense, we’ve already seen California default, when that state issued vouchers. If any company tried that, they would be in bankruptcy court in days. Issuing vouchers didn’t trigger a California crisis because banks were willing to honor the vouchers. If banks refuse to honor the vouchers next time, employees and vendors won’t be paid, and state operations will come to a halt. This could happen if our legislature locks up and is unable to act on the current $21 billion problem.

Another possible California scenario is that the State will try to sell or roll over some debt, and no one buys it. Already, we’ve seen California officials surprised with the interest rates they have had to pay. What happens if no one buys California’s debt? We saw last September what happens when lenders refuse to lend to large creditors.

If we continue on the current path, the worst case is also the more likely case. Bad news keeps dribbling out. One day we find we are paying 30-percent-higher-than-anticipated interest on a bond issue. A few days later, we find the budget shortfall is billions of dollars higher than projected just a short time ago. Every month brings new bad news. The risk that one of those news events triggers a crisis grows with every news event.

Given California’s recent history, it is difficult to believe that the people with the authority and responsibility for California’s finances can act responsibly, but that is what we need. Responsible action would be creating a gimmick-free budget that places California finances on a sustainable path, and provides an environment that allows for opportunity and job creation. But, sadly, Sacramento probably cannot draft an honest balanced budget, and will thus need to plan for California’s eventual default. They need to work with Federal Government and Federal Reserve Bank officials to insure a coordinated plan to limit damage to financial markets. That plan needs to be ready to release when markets go crazy, which is exactly what could happen when participants realize that default is possible. It could be needed sooner than they think.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

WASHINGTON -- Dalton Trumbo (1905-1976) was a hero to the American left, partly because of his 1939 anti-war novel "Johnny Got His Gun." Trumbo's title modified the lyric "Johnny get your gun" from the World War I song "Over There." Trumbo's "Johnny" is horribly maimed in that war. Now we need a novel titled "Berkeley Got Its Liberalism." Pending that, we have Tad Friend's report, in the Jan. 4 New Yorker, on maimed Berkeley.

California, a laboratory of liberalism, is spiraling downward, driven by a huge budget deficit. So the University of California system's budget was cut 20 percent. Then the system increased in-state student fees 32 percent to ... $10,302. But that is still 70 percent below student costs at Stanford and other private institutions in California that Berkeley considers no better than it is.

Last September, Friend reports, 5,000 Berkeley employees and students rallied in Sproul Plaza, scene of protests that ignited the 1960s and helped make Ronald Reagan governor. Some protesters, says Friend, were "naked except for signs that read 'BUDGET TRANSPARENCY.'" At an indoor meeting, a "student facilitator" used a projection screen to summarize proposals, which included: "rolling strikes"; "nationalize all universities"; "socialist revolution"; "a tent city in Sacramento"; "create a shadow Board of Regents"; "occupy Wells Fargo Bank in downtown Oakland"; "worker-student control of the university"; "strike in March"; "act now, f--- March"; "capitalism is bad." Toward the end of the seven-hour meeting, participants shouted "General strike! General strike!"

In its impact on the institution, and on students trying to grip the lower rungs of the ladder of social mobility, the UC system's crisis is sad. This academic year, only one-sixth of the normal number of new faculty have been hired at Berkeley. The Cal State system -- a cut below the UC campuses -- will enroll 40,000 fewer students this year than last. But because the professoriate is overwhelmingly liberal, there is rough justice in its having to live with liberalism's consequences, which include this:

Kevin Starr, author of an eight-volume -- so far -- history of the (formerly) Golden State, says California is "on the verge" of becoming something without an American precedent -- "a failed state." William Voegeli, writing in the Claremont Review of Books, tartly says that "Rome wasn't sacked in a day, and California didn't become Argentina overnight." Indeed.

It took years for liberalism's redistributive itch to create an income tax so steeply progressive that it prompts the flight from the state of wealth-creators: "Between 1990 and 2007," Voegeli writes, "some 3.4 million more Americans moved from California to one of the other 49 states than moved to California from another state."

And the state's income tax -- liberalism codified -- intensifies the effects of business cycles on the state's revenue stream: During booms, the stream surges and stimulates government spending; during contractions, revenues dwindle but the new government spending continues. Voegeli says that if California's spending had grown no faster than population growth and inflation from 1992 to 2006, it would have been $65 billion less in 2006, and per capita government outlays then would have equaled not those of Somalia or Mississippi but of Oregon, which is hardly "a hellish paradigm of Social Darwinism."

It took years for liberalism's mania for micromanaging life with entangling regulations to make California's once creative economy resemble Gulliver immobilized by the Lilliputians' many threads. The state, which between 1990 and 2007 lost 26 percent of its factory jobs and 35 percent of its high-tech manufacturing jobs, ranks behind only New York, another of liberalism's laboratories, in the number of outward-bound moving vans.

It took years for compassionate liberalism to make California's welfare menu contribute to the state becoming an importer of Mexico's poverty. It took years for servile liberalism to turn the state into what Voegeli calls a "unionocracy," run by and for unionized public employees, such as public safety employees who can retire at 50 and receive 90 percent of the final year's pay for life.

Friend reports that when the seven-hour meeting ended, the protest moved to the UC president's house. Two buses carried "some hundred Berkeley students and members of AFSCME." Perfect.

The American Federation of State, County and Municipal Employees is one reason why California's government employees -- their numbers grew 24 percent between 1997 and 2007 -- are the nation's most highly compensated. And why California's economy is being suffocated by the weight of government. And why the state's budget has little left over for Berkeley.

""some 3.4 million more Americans moved from California to one of the other 49 states than moved to California from another state."

Well if this is true we must put this in context to the overall population of California. NO ONE who has a brain would suggest the pop of California has gone down between 1990 and 2007.

Looking at the Census of 1990 the population was 29,760,021. In 2000 it was 33,871,648.A Census estimate for 2008 is 36,756,666. Thus DESPITE NET 3.4 million people moving from California to another state than moving to California from another state the population has gone up roughly 7 million people.

So the conclusion is there are 3.4 million plus 7 million new people or 10.4 million NEW people in this state who must have:1) been born there2) come to California from another country

No one disputes the state is in complete financial trouble and on the verge of ruin.

Yet we have the liberal and politically correct crowd who tell us there is a net economic gain (somehow) of immigration (legal and illegal).

How can any rational person reconcile the claims and the facts?

The vast majority of the increase in population in California MUST be from illegals and their offspring. Based on Census own numbers there is no other explanation. I doubt much of the increase is from legal immigration from other countries.

And it is highly unlikely the birth rate of citizens (not including automatic "citizens of those who come here illegally) is high enough to add anything much to the increase in population numbers.

Thus here is evidence that illegals are *contributing* to bankrupting California.They are not the sole cause but in addition to the liberal government programs that exist and are expanded on State and National levels we have a state that appears to be ready to implode and declare bankruptcy.

I have no problem confiscating 90% if all the wealth of all liberals in show business to pay down the debt.

Bioethics: Five years after a budget-busting $3 billion was allocated to embryonic stem cell research, there have been no cures, no therapies and little progress. So supporters are embracing research they once opposed.

California's Proposition 71 was intended to create a $3 billion West Coast counterpart to the National Institutes of Health, empowered to go where the NIH could not — either because of federal policy or funding restraints on biomedical research centered on human embryonic stem cells.

Supporters of the California Stem Cell Research and Cures Initiative, passed in 2004, held out hopes of imminent medical miracles that were being held up only by President Bush's policy of not allowing federal funding of embryonic stem cell research (ESCR) beyond existing stem cell lines and which involved the destruction of embryos created for that purpose.

Five years later, ESCR has failed to deliver and backers of Prop 71 are admitting failure. The California Institute for Regenerative Medicine, the state agency created to, as some have put it, restore science to its rightful place, is diverting funds from ESCR to research that has produced actual therapies and treatments: adult stem cell research. It not only has treated real people with real results; it also does not come with the moral baggage ESCR does.

To us, this is a classic bait-and-switch, an attempt to snatch success from the jaws of failure and take credit for discoveries and advances achieved by research Prop. 71 supporters once cavalierly dismissed. We have noted how over the years that when funding was needed, the phrase "embryonic stem cells" was used. When actual progress was discussed, the word "embryonic" was dropped because ESCR never got out of the lab.

Prop 71 had a 10-year mandate and by 2008, as miracle cures looked increasingly unlikely, a director was hired for the agency with a track record of bringing discoveries from the lab to the clinic. "If we went 10 years and had no clinical treatments, it would be a failure," says the institute's director, Alan Trounson, a stem cell pioneer from Australia. "We need to demonstrate that we are starting a whole new medical revolution."

The institute is attempting to do that by funding adult stem cell research. Nearly $230 million was handed out this past October to 14 research teams. Notably, only four of those projects involve embryonic stem cells.

Among the recipients, the Los Angeles Times reports, is a group from UCLA and Children's Hospital in Los Angeles that hopes to cure patients with sickle cell disease by genetically modifying their own blood-forming stem cells to produce healthy red blood cells. Researchers at Cedars-Sinai Medical Center will use their grant to research injecting heart-attack patients with concentrated amounts of their own cardiac stem cells that naturally repair heart tissue.

An old friend of mine has a saying, "Even the worm learns." Prod one several hundred times, he says, and it will learn to avoid the prodder. As California enters its annual budget drama, I can't help but wonder if the wisdom of the elected politicians here in the state capital equals that of the earthworm.

The state is in a precarious position, with a 12.3% unemployment rate (more than two points higher than the national average) and a budget $20 billion in the red (only months after the last budget fix closed a large deficit). Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn't a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts.

Earlier this month, Gov. Arnold Schwarzenegger proposed a budget that calls for a $6.9 billion handout from Washington (unlikely to be forthcoming) and vows to protect current education funding, 40% of the state's budget. He does want to eliminate the Calworks welfare-to-work program and enact a 5% pay cut for state employees. These are reasonable ideas, but also politically unlikely.

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Associated Press

Los Angeles County employees rally for a new contract..As the Sacramento Bee's veteran columnist Dan Walters recently put it, the governor's budget is "disconnected from economic and political reality." Mr. Walters suspects what will happen next: "Most likely, [the governor] and lawmakers will, to use his own phrase, 'kick the can down the road' with some more accounting tricks and other gimmicks, and dump the mess on whoever is ill-fated to become governor a year hence."

Mr. Walters' Jan. 10 column was fittingly titled, "Schwarzenegger Reverts to Fantasy with Budget Proposal." Shortly before releasing his budget, the governor and Democratic state Senate President Pro Tem Darrell Steinberg held a self-congratulatory news conference. Mr. Steinberg used the spotlight to bemoan what he deemed to be unfair attacks on California. Mr. Schwarzenegger told a hokey story about his pet pig and pony working together to break into the dog's food. It was an example, he said, of how "last year, we here in this room did some great things working together."

Meanwhile, activists are fast at work. For example, the Bay Area Council, a moderate business organization, is pushing for a constitutional convention to reshape California's textbook-sized constitution. The council's aim is to ditch a constitutional provision that requires a two-thirds vote in the legislature to pass budgets. Other reforms being proposed include a plan to institute a part-time legislature and another plan to require legislators to pass drug tests. None of these ideas will ratchet down state spending.

To do that California needs to take on its public employee unions.

Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.

Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year's pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state's pensions funds have been fully funded (which they haven't been).

A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar.

One idea gaining traction is to create a two-tier pension system to offer lesser benefits to new employees. That's a good start, but it would still leave tens of thousands of state employees in line to receive lucrative benefits that the state must find future revenues to pay for. Another is to enact paycheck protections that require union officials to get permission from their members before spending union dues on politics (something that would undercut union power).

My hope is that these and other reforms find support in unlikely places. Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: "The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact."

State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."

As the state careens toward insolvency, these remarks are the first sign that some people are learning the lesson of the earthworm.

Mr. Greenhut is director of the Pacific Research Institute's journalism center and author of the new book "Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation" (The Forum Press).

California has the 3rd highest state income tax in the nation: 9.55% tax bracket at $47,055 and 10.55% at $1,000,000 - Tax Foundation 2010 State Business Tax Climate Table 2 California has the highest state sales tax rate in the nation by far at 8.25%. Indiana is next highest at 7%. Table 15California corporate income tax rate is 3rd worst in the nation with a rate of 8.84%. - Table 2 and Table 8 California ranks 13th in property taxes. Table 2

California has the fourth highest capital gains tax 9.55%. - Capital Gains Tax Rates By State California has the highest gasoline tax as of January 2010, averaging 65 cents/gallon. The national average is 47.4% - API Motor Fuel Taxes California has one of the highest state vehicle license car taxes, 1.15% per year on value of vehicle, up from 0.65% in 2008. [expired link]

So where's the money going?

1 in 5 in LA County receiving public aid, nearly 2.2 million people as of February 2009. 20% in Los Angeles County receive public aid California has 12% of the nation’s population, but 36% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 8 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA. July, 2009 California has more recipients in key welfare category than next eight states combined. California prison guards highest paid in the nation. The maximum pay of California's prison guards is nearly 40 percent higher than that of the highest-paid guards in 10 other states and the federal government, according to a study by the California Department of Personnel Administration. Cal-Taxletter California teachers easily the highest paid in the nation. National Education Association California now has the lowest bond ratings of any state, two steps above junk. The new rating affects about $72 billion of general obligation and lease-supported bonds. July 15 California bond rating cut again California ranks 44th worst in “2008 lawsuit climate.” Institute For Legal Reform California, a destitute state, still gives away college education at fire sale prices. California community college tuition is by far the lowest in the nation. Nationwide, the average community college tuition is 4.5 times higher than California CC’s. This ridiculously low tuition devalues education to students – resulting in a 30+% drop rate for class completion. Moreover, 2/3 of California CC students pay no tuition at all – filling out a simple unverified “hardship” form that exempts them from any tuition payment, or receiving grants and tax credits for their full tuition. [Expired Link] California offers thousands of absolutely free adult continuing education classes. In San Diego, over 1,400 classes for everything from baking pastries to ballroom dancing are offered totally at taxpayer expense. San Diego Continuing Education California residential electricity costs 13.81 cents per kilowatthour. The national average is 6.99-8.49. US Department of Energy It costs 38% more to build solar panels in California than in Tennessee – which is why European corporations have invested $2.3 billion in two Tennessee manufacturing plants to build solar panels for our state. March 5, 2009 More Solar Companies Producing Elsewhere to Sell to California

The above lists reformatted and reordered from a list compiled by Richard Rider, Chairman, San Diego Tax Fighters.

California is doomed for two simple but profound reasons: the cost structure is too high for most businesses to survive, and a boom-dependent economy. The dysfunctions crippling California would easily fill a volume: a dysfunctional Legislature that has been gerrymandered to protect virtually every seat; a dysfunctional proposition system which enables special interests to craft Protected Fiefdoms via the ballot box; recalcitrant public unions who don't see anything wrong with public servants getting 90% of top-pay in pensions while still earning big bucks as "contract employees," an enormous population of undocumented workers who pay only sales taxes, and whose employers pay no payroll taxes, either-- and that just scratches the surface. I want to highlight two systemic, structural causes for California's impending bankruptcy as a state and as an "economy": a crushingly high costs structure and an economy entirely dependent on the next boom. I know this sounds too simplistic to be meaningful, but I think there is much truth in this statement: Costs are too high because the guy before you paid too much. In other words, you can't afford the $500,000 mortgage on the $625,000 house you bought in 2008 because the guy before you paid $550,000 for a house which sold for $140,000 in 1997. These numbers are drawn from reality: our friends bought a small home in a desirable suburb in the San Francisco Bay Area for $140,000 in 1997. Yes, it was a fixer-upper and yes, our friends completely remodeled it. The fair value of the house after renovation was probably in the $175,000 to $190,000 range, tops. They sold the house in 2005 for $550,000, and that buyer unloaded the house in 2008 for $625,000. This represents approximately $235,000 of actual value (the $175,000 adjusted for inflation from 1997 to 2010 as per the BLS inflation calculator) and $390,000 of "credit-bubble" excess. Yet that "bubble valuation" is an actual cost now that somebody borrowed money to pay that grossly inflated price. This mechanism is absolutely key to understanding the California economy's fundamental insolvency: the apartment rent is high because the landlord overpaid, the office rent is high because the landlord overpaid, the house is too high because the previous owner overpaid and his/her lender ponied up the mortgage based on bubble valuations. You can see the bubble in this chart of median home prices in California:

It even explains why Napa Valley is going bust, as a story submitted by frequent contributor U. Doran called "Vineyard Defaults Surge as Bargain Wines Hurt Napa Valley" reveals.Wine costs are partly driven by the fact that the last guy grossly overpaid for vineyard land. Now the lenders are scrambling, but it's all too late; bubbles burst, and sadly for the lenders and those who bought at the top of the bubble, there will be no boom to save them. Hunkering down and awaiting the next boom is a strategy as old as the state itself. When the easily plucked gold in the Sierra Nevada ran out, the economy based on supplying distant mining camps died right along with hundreds of those camps. But then the Comstock Lode of silver was discovered in Nevada, and California--especially San Francisco--was bailed out by a veritable flood of fresh wealth pouring out of the mines. More recently, the fall of the Soviet Union in the early 90s gutted the defense industry which had been a mainstay of the California economy since World War II. That "depression" lowered real estate values and caused many bankruptcies, personal and business alike. But then the biotech and personal computer/software revolution took hold (the Macintosh took off as the laser printer revolutionized desktop publishing, etc.) and the next boom was under way. Tax revenues skyrocketed and Silicon Valley was the envy of the world, sparking wannabe "incubators of wealth" from New York (Silicon Alley) to Malaysia and beyond. While no boom runs white-hot forever, the residents of California have come to expect a new bubble/boom to arise to fuel rising tax revenues and real estate valuations. Just as the PC revolution peaked (1995's "Start Me Up" Windows launch (as the bumper sticker had it, "Mac 1985, Windows 1995"), then the Internet boom started, triggering a frenzy of overinvestment and bubblicious valuations. After that bubble burst in 2001, hot-spots in San Francisco and the valley lost some luster, and about 120,000 workers lost their jobs and left Northern California. But once again, a new wave of web-enabled businesses arose: Netflix, the Google juggernaut, Apple reclaimed the crown of global device/software integration innovation, Twitter, etc. etc. But the current Web 2.0 boom is not generating a flood of new wealth which spreads over the landscape. Twitter has about 100 employees and might double to 200. Apple employs a few thousand people in Cupertino but all its manufacturing is done elsewhere. What nobody seems to notice is that Web 2.0 is all about leveraging automated software. You don't need 10,000 people to run Twitter or Facebook. And as I noted yesterday, these Web 2.0 businesses based on advertising revenues are inherently limited to the pool of available advertisers whose adverts are actually generating revenues. You can't reinflate a trillion dollars of real estate with 200 employees. California is now the world capital of Denial. Everyone from the State legislature to union officials to realtors to small business owners are hanging on, refusing to face the fact that there will be no boom to save them and the state. To survive one more year, they're borrowing money, hiding debts and real valuations, monkeying with the books and playing accounting tricks, borrowing from next year's revenues, selling bonds--anything to maintain the artifice of solvency for 2010 so the next boom (conveniently scheduled for 2011) will lift real estate values, create hundreds of thousands of high-paying jobs and launch entire new industries. Welcome to the Golden State of Denial. Without another global bubble--for California is a global economy--then California is doomed to insolvency at every level, public and private. A return to historical levels of real estate valuations will bankrupt every lender and every owner with debts based on bubble valuations. State and local governments are thus doubly doomed, as their property tax revenues dry up and payroll taxes dwindle along with the job count. California's entire cost structure is based on bubble/boom valuations and the vast tax revenues generated by those bubbles/booms. The problem in California is everything costs too much: auto insurance costs more, gasoline costs more, taxes are near the top, especially on those households who make more than $100,000 a year, sales taxes are basically 10%, workers compensation insurance, business licenses, vehicle taxes, State Park admission/parking fees, rent, housing, and on and on. The state and all its local governments have grown fat on endless bubbles and booms, and are now refusing to face the long lean years ahead. California is like the pilgrim who gets saved by a miracle at every turn. The economic miracles can't run out, because we've always been saved before. As the disclaimer puts it: past performance is not a guide to future performance. In some ways, California's dependence on bubbles and booms mirrors the nation as a whole; as with so many things, California has just extended the fantasy further.

STEVEN GREENHUTVallejo Goes for BrokeCan bankruptcy save California’s cities from staggering pension obligations?31 March 2010As California cities and counties struggle to fulfill the generous pay and pension commitments that they made to public employees during flush economic times, some politicians have taken comfort in a usually forbidding word: bankruptcy. Top officials in Los Angeles and San Diego have raised the B-word in recent weeks, and almost everyone is paying attention to developments in Vallejo (population 117,000), on the edge of the San Francisco Bay Area. The blue-collar port city filed for bankruptcy in May 2008, after it couldn’t pay its bills. Now, observers are watching to see whether Vallejo—the biggest California city to file for bankruptcy so far—offers a road map out of the mire.

Blame Vallejo’s politics, dominated by public-sector unions, for the city’s sorry fiscal situation. “Police and firefighter salaries, pensions and overtime accounted for 74 percent of Vallejo’s $80 million general budget, significantly higher than the state average of 60 percent,” reported a 2009 Cato Institute study. The study highlighted a shocking level of enrichment: pay and benefit packages of more than $300,000 a year for police captains and average firefighter compensation packages of $171,000 a year. Pensions are luxurious: regular public employees can retire at age 55 with 81 percent of their final year’s pay guaranteed, come hell or a stock-market crash. Police and fire officials in Vallejo, as in much of California, can retire at age 50 with 90 percent of their final year’s pay guaranteed, including cost-of-living adjustments for the rest of their lives and the lives of their spouses. And that’s before taking advantage of the common pension-spiking schemes that propel payouts even higher.

When a city spends so much taxpayer money on retirees, it doesn’t have much left over for services that might actually benefit the public. That’s why Vallejo has been slashing police services and has even warned residents to use the 911 system judiciously. “Since 2005, the number of police officers has dropped from 158 to 104,” a San Francisco Chronicleeditorial about Vallejo pointed out recently. “In 2008, Vallejo had a higher violent crime rate than any other comparable city in California.” And it isn’t just public safety that has suffered. A 2008 Chronicle article reported on a budget plan that “cuts funding for the senior center, youth groups and arts organizations, to the dismay of residents.” Citizens complain about an increasingly decrepit downtown.

All this thrift could go only so far, however. Hence Vallejo’s bankruptcy, which could theoretically remove the city’s crushing obligations to retired employees. Unfortunately, it isn’t clear yet whether the pension promises will actually wind up rescinded. Yes, a judge has ruled that “city labor contracts can be overturned in bankruptcy,” reports Ed Mendell on his well-respected CalPensions blog, but a “ ‘workout plan’ approved by the City Council in December, described as an opening position in labor negotiations, cuts nearly all general fund spending, except for employee pensions.” Though the city eventually voted to reduce firefighter pensions for new hires and to require a larger pension contribution by firefighters, it did not touch existing pensions or pensions for police officers. Vallejo’s avoidance of the pension issue makes it less likely that other cities could declare bankruptcy and then easily dispose of their burdensome pension promises.

That’s unfortunate, because plenty of California cities are in similar straits. For years, local elected officials in Vallejo and throughout the state (and the nation, for that matter) have rapidly fattened pension benefits for public employees, worrying more about the next election cycle than about the ability of their municipalities to make good on all the lush promises. Once these contracts are approved, they become binding and must be fulfilled on the backs of current and future taxpayers.

True, the Orange County Board of Supervisors, which granted massive pension increases twice in the past decade, is making an unusual legal attempt to reduce its pension obligations: it’s pursuing a lawsuit claiming that the retroactive portion of one increase was an unconstitutional gift of public funds. That’s a worthy effort but a long shot. Most California jurisdictions think that bankruptcy is a more feasible alternative if salary and pension costs push them toward insolvency.

The Chronicle editorial, taking Vallejo to task for entering bankruptcy, prescribes two alternatives: more “help” from Sacramento (a nonstarter, given the state’s nearly $21 billion budget deficit) and higher local taxes. That’s certainly what California’s muscular public-sector unions would like to see. They backed legislation that would make it nearly impossible for localities to abrogate their labor contracts in a bankruptcy. Now they’re advocating tax-raising plans and railing against the two-thirds vote requirement to pass budgets and tax increases in the California State Legislature.

Cities across the nation should pay close attention to Vallejo’s workout plan. If bankruptcy isn’t a fix for past profligate spending on public employees, then more debt and higher taxes may be inevitable—a sobering thought in an already-struggling economy.

I had high hope that a Vallejo bankruptcy would set the tone fore dealing with unions. Sadly, that is not the case. Please considerVallejo's Painful Lessons in Municipal Bankruptcy by Steven Greenhut.

In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy. Now, as it prepares to emerge from Chapter 9, officials in Los Angeles, San Diego and other cities across the state are looking to see if Vallejo has blazed a trail for them to get out from under their own crushing pension costs. What they're finding is that even bankruptcy may not be enough to break the grip unions have on the public purse.

A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations.

The study also found that lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.

To permanently bring its spending in line with its tax base, however, at some point Vallejo will have to do something about its pensions. U.S. bankruptcy judge Michael McManus, as the National law Journal reported last March, "held the city of Vallejo, Calif., has the authority to void its existing union contracts in its effort to reorganize."

But when it came to voiding those contracts on pensions—a major driver of public expenses—the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.

This week, the city did approve a new firefighter contract that trims pension benefits for new hires and requires existing firefighters to pay more into their pensions. But that contract doesn't touch existing pensions. Nor does it affect police officers or other city workers. It also leaves the city with a $1.2 million shortfall. "The majority [of council members] did not have the political will to touch the pink elephant in the room—public safety influence, benefits and pay," Vice Mayor Stephanie Gomes told me.Vallejo will eventually be back in bankruptcy court. Hopefully they will get it right next time.

In the meantime, if you live in Vallejo, I advise voting with your feet. Vallejo's mayor and city council are clearly inept, or alternatively bought and paid by the unions.

Steven Greenhut's Plunder!

I encourage you to read Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation by Steven Greenhut.

Plunder! is a fantastic book. I finished it weeks ago, but have not had time yet to do a review. I will. In the meantime I assure you it is well worth a read. It will open your eyes as to what is happening and why in regard to public unions.

Profligate spending, not property-tax reform, has put California in a hole.

WILLIAM VOEGELI

In 1978, Californians enacted Proposition 13, the famous ballot initiative that rolled back property taxes and made it harder for assessors and legislators to raise taxes in the future. The experts still haven’t forgiven the voters. In 1994, Columbia historian Alan Brinkley ascribed Prop. 13’s passage to Californians who believed that they could get “something for nothing: substantial tax relief without a reduction of services.” In 2009, theWashington Post’s Harold Meyerson blamed the “malign initiative” for “effectively destroying the funding base of local governments and school districts” while empowering Republican “Neanderthals” in the state legislature, who refuse “in good times as well as bad to raise business or other taxes.” Earlier this year, Joe Klein of Time wrote that the proposition had made California “Exhibit A of a public pathology that we’ve inherited from the Reagan Era: the public wants a modified welfare state, excellent schools, a clean environment, low college tuitions . . . but it’s not willing to pay for them.”

You get the picture. According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.

Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

The first thing to recognize is that Proposition 13 did not destroy the tax base of California’s local governments. True, the average property-tax rate has fallen from 2.67 percent in 1977 to 1.1 percent today, observes David Doerr of the California Taxpayers’ Association. But the state still brings in a lot in property taxes. By 2007, the year of the most recent Census Bureau data comparing state finances, California’s state and local governments levied $1,141 in property taxes per capita, less—but only 11 percent less—than the corresponding average, $1,288, for the other 49 states and the District of Columbia. Property-tax revenues in the state have increased from $4.9 billion to $47 billion in the 30 years since Proposition 13. Adjust those figures for inflation and population growth, and property-tax revenues in California were 87 percent higher in 2009 than they were in 1979, chiefly because of rising property values.

And even if one tax is limited, others can rise. A recent article in theCalifornia Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978. Census Bureau data show that California ranked tenth in the nation in 2007 in terms of per-capita receipts from all state and local taxes (property, income, sales, and excise taxes) paid by individuals and corporations. Per-capita receipts from individual and corporate income taxes were 64 percent higher in California than they were in the rest of the country: $1,764 in California, $1,077 elsewhere. All told, California’s governments received $4,731 per resident from all taxes, 14 percent more than the $4,160 average outside California.

Ah, comes the objection: these numbers unfairly compare California with an aggregate that includes many rural states with low taxes and limited public services. But even if we confine our discussion to the ten most populous states in the nation, home to 54 percent of all Americans in 2009, California remains a high-tax jurisdiction. Its per-capita taxes exceed not only the national average but those of every other high-population state except New York.

Not only is California a high-tax state; it is even more conspicuously a high-revenue state. Things that aren’t taxes, such as fees for government services, often have a high degree of “taxiness,” as Stephen Colbert might say. “Charges and fees have become an integral part of the California budgetary landscape” because they “give the government a revenue stream that is not subject to limitation and hard for voters to track,” the McCubbinses argue. For example, local governments impose assessments on real-estate developers for the infrastructure and public services that a new housing tract’s residents will require. The developers then incorporate those charges into every unit’s sales price. “Home developers estimate that fees, new infrastructure, and other mandated expenses now run to between $30,000 and $60,000 for each new home,” journalist Peter Schrag noted in Paradise Lost, his book on California’s fall from grace since the 1950s.

Thus it is that the Golden State, routinely described as desperately short of funds because of Proposition 13, brought in $12,776 per capita in governmental income from all sources—taxes, fees, federal aid, charges for government-administered insurance, and revenue from government-owned utilities—in 2007. This amount was the fifth-highest in the nation and second (again) only to profligate New York among the ten most populous states (see the chart above).

Californians have good reasons, then, to tune out the incessant lectures about how the state wouldn’t be so screwed up if only they reached deeper into their pockets. And tune out they do. Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”

The Californians who refuse to jettison Proposition 13 have a well-founded suspicion: that the state’s public sector is starving on its high-calorie diet because of mismanagement and capitulations to public-employee unions. Consider public education: California spent $8,909 per pupil in 2007–08, according to the U.S. Department of Education. Twenty-eight states and the District of Columbia spent more; 21 spent less, including Florida and Texas, which are also large Sunbelt states with enormous metropolitan areas and significant immigrant populations. Despite outlays that are in the middle of the scale, however, California students perform miserably on the U.S. Department of Education’s National Assessment of Educational Progress. In reading, California fourth- and eighth-graders rank 48th among all states; in math, fourth-graders rank 45th and eighth-graders rank 46th. (Students in Florida and Texas do significantly better on all counts.)

One reason for California’s poor performance may be that its pupil-to-teacher ratio is the country’s second-highest, behind only Utah. A public school with 1,000 students in California is likely to have just 48 teachers; the large classes that result hamper instruction. That problem stems from the efforts of the powerful unions that have helped make California public school teachers America’s most highly compensated, with an average salary of $66,986, 24 percent higher than the national average. (The statistics, for 2008–09, are from the National Education Association.) Such high salaries prevent California school districts from hiring more teachers and perhaps raising those abysmal test scores.

In fact, California taxpayers find themselves charged exceptional prices for unexceptional public services in one area after another. Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show. A veteran reporter for the Sacramento Bee, Dan Walters, calculates that California’s per-prisoner incarceration expenditures are 65 percent higher than the average for the nation’s ten most populous states, costing the state’s taxpayers an extra $4 billion per year. A recent New Yorker article on the University of California, lamenting its fiscal problems and predictably asserting that Proposition 13 “broke the government,” mentions in passing that the ten UC campuses have 229,000 students and 180,000 faculty and staff—nearly four employees for every five students. And this after what the magazine calls “decades of whittling” in the state’s financial support for UC, culminating in a “starveling” budget!

No one ever accused Milton Friedman of being sanguine about government’s willingness to restrain itself. In hindsight, however, his hopes for Proposition 13 were excessive. Friedman argued at the time that limiting a government’s entire budget, as the proposition did, was the only way to reverse the logic of interest-group liberalism, in which micro-constituencies, each focused intently on supporting a particular government program, invariably prevail against the general public, which lacks the time, awareness, and incentive to oppose those programs one by one. “We are not going to vote anybody out of office because he imposes a $3-a-year burden on us,” Friedman wrote. By reining in the budget, measures like Prop. 13 meant that any “special group that wants a special measure has to point out the other budget items that can and should be reduced”—or so Friedman thought.

Thirty-two years and hundreds of billions of dollars later, it’s clear that government’s manifest destiny to grow won’t be so easy to halt. As furiously as liberals have denounced Proposition 13, conservatives have reason to be disappointed in a political victory that proved the Bunker Hill, not the Yorktown, of the tax revolt. The moral of the story is that expenditure and tax limitations, of which Prop. 13 was the prototype, can serve as valuable first steps but are neither decisive nor self-implementing. To get state and local governments to spend tax dollars reluctantly and for the benefit of the general public—rather than profligately and for the advantage of public officials, employees, and their favored constituencies—will require continuous exertion; episodic interventions in the political process won’t be enough.

William Voegeli is a contributing editor of The Claremont Review of Books, a visiting scholar at Claremont McKenna College’s Salvatori Center, and the author of Never Enough: America’s Limitless Welfare State.

Prop. 14. Distorted Primary. NO: This was the result of the corrupt deal for the tax increase engineered by Abel Maldonado that included this measure to by-pass party primaries in a manner Maldonado believed would enhance his future election prospects. Instead of voters of each party putting their best candidate forward, this jerry-rigged system is designed to disguise the difference between the parties and force those pesky third parties off the general election ballot entirely.

Prop. 15. Taxpayer Funded Elections. NO: The real purpose of this measure is to allow the legislature to tap taxpayers to finance political campaigns. Jefferson said it best: "To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical."

Prop. 16. Utility Elections. YES: Cash-guzzling city governments have been taking over the territory of utilities through eminent domain and PG&E wants to put it to a vote. This measure gives you the choice upon whose mercy your future electricity bills will depend: the monopoly of city hall or the monopoly of your utility. Here's a better idea: restore the freedom of individual consumers to choose among competing providers who actually have to earn their business. Alas, that part was left out by the suits at PG&E.

Prop. 17. Insurance Rates. YES: A simple question: should drivers be able to take their "continuous coverage" discount with them when they change insurance companies? A simpler question: why are our laws such a micro managing mess that we have to vote on something as self-evident as this in the first place?

On the statewide races:

For Governor, Steve Poizner: Steve had the courage to support Arizona's decision to enforce our immigration laws when Meg Whitman cut and ran. He opposes the bank bailouts, rampant borrowing and environmental extremism that Meg Whitman embraces. And unlike Whitman, Steve Poizner was never "a huge fan" of radical leftist Van Jones. This time, let's have a governor from the Republican wing of the Republican Party.

For Lt. Governor, Sam Aanestad: Sam was my seatmate for many years in both the Assembly and the Senate. He never wavered from his devotion to Republican principles of limited government. Abel Maldonado broke his signed taxpayer pledge and bears responsibility not only for the biggest tax increase in California's history, but also the budgets that ran California off the fiscal cliff. No single race on the ballot more clearly defines the difference between the Party of Reagan and the Party of Schwarzenegger.

For Attorney General, John Eastman: I worked with John Eastman at the Claremont Institute – a public policy think tank devoted to restoring American founding principles to the public policy debate. John is a nationally renowned Constitutional advocate and scholar whose leadership is desperately needed in the Attorney General's office. Imagine having an Attorney General who not only respects the Constitution but who understands and reveres it.

For Insurance Commissioner, Anybody But Villines. Mike Villines was another of the sell-out Republican votes on the massive tax increase that crushed what was left of our state's economy last year, after signing a no-new-taxes pledge. Liars don't belong in government.

For U.S. Senate, Chuck DeVore: Chuck is a conservative's conservative who has always stood on principle, even when it has meant standing virtually alone. I've never heard him give a speech without thinking "I wish I'd said that." I rank him up there with Sam Aanestad as one of the finest people I've had the opportunity to serve with in the legislature. He would become an instant leader in the United States Senate.

From the previous link:"Bankruptcy is exactly what public unions deserve."

Refreshing to see 'bankruptcy' presented as a solution, not the problem. Legacy debts of an operation are obligations only so long as the entity is successful and survives. There needs to be some mechanism to clear out the outrageous pension and unrealistic benefit packages approved by previous legislatures who had no governing right to bind future legislatures.

We don't choose forest fire but it does clear out dead wood and let sunlight shine through to the new growth on the forest floor.

People confuse bankruptcy - the positive process of dismantling the failure and starting over - with the failure itself that led to it.

"I've always voted against taxes. This is important, ladies and gentlemen, because our country is on a precipice. Do you want people to follow through on their promises?" state Assemblyman Chuck DeVore bellows to a rapt crowd this week at the Ayres Hotel in Costa Mesa. More than three hundred people have come to this GOP Senate debate to see the three candidates duke it out in the final push toward the June 8 primary. And Mr. DeVore clearly doesn't plan on playing third fiddle to opponents Tom Campbell and Carly Fiorina.

The rabble-rousing radio talk-show hosts moderating the debate encourage the candidates to "fight it out" as if it were a WWF wrestling match. So when Mr. DeVore goes after former Hewlett Packard CEO Fiorina for supporting a ballot initiative a decade ago that he says "would gut Prop 13," which limits property tax increases, she fires back: "I'm sure it's very frustrating for Chuck DeVore to have so many conservatives endorsing me. Maybe it makes Chuck DeVore, who's sort of dog-paddling at 14% in the polls . . . feel better to belittle other people's conservative credentials."

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Associated Press

GOP Senate candidates Tom Campbell (left), Chuck DeVore, and Carly Fiorina..Her aggressive defense draws boos and hisses. Mr. DeVore's supporters outnumber his opponents' supporters by about three to one. These are the tea partiers we keep reading about. Many of the people I talk to say this election is the first time they've been involved in politics; they're concerned about their grandchildren's futures. "I'm worried we're turning into Greece with all of our entitlements," says an older DeVore supporter sitting next to me.

After the state's disastrous experiment with Gov. Arnold Schwarzenegger, fiscal conservatism resonates. Mr. Schwarzenegger was swept into power seven years ago on the promise of fiscal responsibility, even though he had no track record to recommend him. Under his predecessor, Democrat Gray Davis, the state budget deficit reached a mammoth $38 billion. Yet during Mr. Schwarzenegger's first four years in office, state spending ballooned to $103 billion from $78 billion. Last year, the state faced a $42 billion deficit.

Though better known and better funded than Mr. DeVore, Ms. Fiorina and Mr. Campbell are struggling to pull ahead in the primary race to take on Sen. Barbara Boxer in the fall. And even though recent polls show Mr. DeVore trailing by double digits, his support has nearly doubled in the last two months to 16% from 8%.

Mr. DeVore's campaign is predicated on convincing conservatives that they can't trust Ms. Fiorina's credentials. At the debate, his volunteers passed out leaflets claiming she supported the stimulus, the Wall Street bailout, cap and trade, ObamaCare and amnesty for illegal immigrants. Though all gross misrepresentations of her positions, they generate anxiety among a distrustful electorate. When I ask people why they can't support Ms. Fiorina, they point to this leaflet.

What these tea partiers don't seem to realize is that by supporting Mr. DeVore, they are splitting the conservative vote and will likely hand a win to the moderate Mr. Campbell. If Mr. DeVore's attacks on Ms. Fiorina are as successful in riling up conservative voters as they are at this debate, come November Republicans will have a choice between Ms. Boxer, who has held the seat for three terms, and a "Barbara Boxer-lite," as Ms. Fiorina called Mr. Campbell in the debate.

Mr. Campbell has locked up the moderate vote because he's pro-choice on abortion and pro-gay marriage. "If we're serious about replacing Boxer, we need to nominate someone who is fiscally conservative and socially moderate," Mr. Campbell says, trying to sell his positions to the socially conservative crowd.

Mr. Campbell is a known quantity, having served 10 years in Congress and worked as Mr. Schwarzenegger's finance director. He was the architect of California's 2005 budget, credited for the state's current financial problems. He has also proposed covering the state's budget gap with a 32 cent per gallon gas tax, and he supported the governor's decision last year to sign a $12.5 billion tax hike.

Ms. Fiorina has used Mr. Campbell's spotty fiscal record to portray him as a "FCINO," or fiscal conservative in name only. Her "demon sheep" YouTube video depicting Mr. Campbell as a wolf in sheep's clothing struck a nerve among Republicans who once supported him because they thought he had the best chance of taking down Ms. Boxer. Now they're not so sure.

But they're not sure about Ms. Fiorina either, though she holds strong conservative positions on just about every issue. During the debate, she silences the pro-DeVore crowd when she speaks fluently about Sarbanes-Oxley (a 2002 federal law that set new accounting standards for publicly traded firms) and the Wall Street bailout in ways her primary opponents—and certainly Ms. Boxer—cannot. She's also run a Fortune 500 company. In short, she could be "the one" California conservatives have been waiting for to finally trample Ms. Boxer. But—and it's this that worries people—she has no legislative voting track record.

Although their movement is sweeping out political insiders across the country, tea partiers in the Golden State are loathe to take a chance on someone who doesn't have political experience. Yet by voting for Mr. DeVore because of his conservative record, they may guarantee Mr. Campbell a spot on the GOP ticket.

Why is Chritie succeeding where Schwarenegger failed? Perhaps it is timing. People are finally waking up to the dire straits some states are in due to public spending.

New Jersey Governor Defies Political ExpectationsBy RICHARD PÉREZ-PEÑAPublished: July 11, 2010FRANKLIN TOWNSHIP, N.J. — A momentous deal to cap property taxes was all but done, but Gov. Chris Christie was taking no chances, barnstorming the state to commiserate with squeezed homeowners and keep pressure on the Legislature.

Jodi Hilton for The New York TimesLawmakers in both parties say Gov. Chris Christie and his team have been smart as well as lucky.

When a reporter suggested that the governor do a rain dance, he said, “Don’t want to miss that, baby.” And in the rare instance of his withholding judgment on an issue, he said he preferred to know something about the issue before opining, although, he added, tongue in cheek, that actual knowledge was not necessarily a requirement.

It was a model taste of Mr. Christie, six months into his term as governor: blunt, energetic, clearly enjoying himself.

And having his way.

Mr. Christie has turned out to be a far more deft politician than his detractors — and even some supporters — had expected, making few compromises as he pursues a broad agenda for remaking New Jersey’s free-spending political culture. So far, polls suggest, the public is giving him the benefit of the doubt.

“The most important thing in public life, in a job like governor, is for the people you’re representing to know exactly where you stand,” Mr. Christie said in an interview on Friday. “People who disagree with me on things at least have a sense of comfort in knowing where I’m coming from.”

In a mostly blue state where Democrats control the Legislature, Mr. Christie, a Republican, won election last year mostly because of the deep unpopularity of his opponent, Gov. Jon S. Corzine. Mr. Christie, a former federal prosecutor known for aggression rather than deal-making, took office to predictions that his hard-charging style would not work in the labyrinth of Trenton, where factions of party, region and interest group would slow him down.

Instead, he confronted the powerful public employees’ unions and won, cutting future pensions and benefits, and persuaded voters to defeat hundreds of local school budgets. He got nearly everything he wanted in the state budget, making the deepest cuts in generations. And the Assembly is expected this week to give final passage to one of his cherished goals: a cap on local property taxes.

The governor has repeatedly used his powers more confrontationally than his predecessors, wading into school budget fights, freezing the actions of semiautonomous public authorities and breaking with tradition by refusing to reappoint a State Supreme Court justice.

“I think we all underestimated his political skill coming in,” said Brigid Harrison, a political science professor at Montclair State University. “You can’t deny that he’s been a tour de force in Trenton. He has managed to control the legislative agenda more than other governors, despite having a Legislature controlled by the opposite party.”

The governor has a direct, pithy speaking style — the sharp rise in property taxes in the past decade, he said, “is not a mystery; it’s a mandate” — often leavened by humor. And he is relentless, willing to hammer any message repeatedly and take on any critic, and he rarely meanders or evades a question.

When a reporter called him confrontational at news conference, Mr. Christie said, “You must be the thinnest-skinned guy in America,” adding that the reporter had never seen him when he was furious.

The few public opinion polls conducted so far show that he has not had the sharp drop in approval that often accompanies serious budget cuts, though most of the pain from those cuts has not yet been felt.

“He’s a much better communicator than we realized, and people seem to be willing to go along with him for now,” said Patrick Murray, director of the Monmouth University Polling Institute. “He uses clear language, he doesn’t mince words, he’s funny, and he says what he thinks.”

Mr. Christie has become a favorite of conservatives across the country, and some talk of him as presidential material, though he insists, “No way is it going to happen.”

So far, circumstances have worked in Mr. Christie’s favor. The State Senate has a new president, Stephen M. Sweeney, who is seen as less liberal than his predecessor, Richard J. Codey, and more inclined to work with the governor. The recession, rising taxes and New Jersey’s perilous financial situation give persuasive power to the call to rein in government, and give Democrats who might disagree little room to maneuver.

“I think the tough times have dictated straight talk and forceful moves, and that fits him quite well,” said George Norcross III, a Democratic power broker from Camden County.

New Jersey Governor Defies Political ExpectationsPublished: July 11, 2010But lawmakers in both parties say the governor and his team — a mix of old Trenton hands and people who worked for him in the United States attorney’s office — have been strategically smart as well as lucky. Mr. Christie chose top aides, led by Richard Bagger, his chief of staff and a former legislator, who have been able to smooth private negotiations when people are battling in public.

RelatedNews Analysis: Showdown Over N.J. Budget Is Avoided for Now (June 30, 2010) Christie, Shunning Precedent, Drops Justice From Court (May 4, 2010) Times Topic: Christopher ChristieFrom the start, the governor served notice that he saw the public employees’ unions as a central part of the state’s problems, and that he meant to take them on. His first day in office, he signed an executive order, later struck down in court, to limit their ability to finance campaigns. The first bills he signed limited spending on pensions and benefits. He relished months of verbal sparring with the teachers’ union, and analysts say he got the upper hand.

Mr. Christie said there was no plan to put the unions front and center, though some of his aides say privately that it was quite intentional.

But on controlling local government spending and taxes, he acknowledged that “yes, absolutely,” there was a political strategy to doing things in a particular order. The governor’s budget reduced school aid, leading to predictions that districts would raise property taxes. He blamed the teachers’ union for any increases and proposed capping property tax increases. Now he is using that cap as leverage for a package of bills, which has met union opposition, to help towns and school districts control spending.

The governor even pointed to areas where he might, uncharacteristically, tread lightly rather than face fierce resistance, like banning the holding of two or more government jobs simultaneously, a common practice among legislators.

It remains to be seen how well Mr. Christie will wear on New Jersey voters. Over the next year, people will begin to see the effects of his policies in their schools and towns, in his cut in funds for family planning or, for government workers, in their paychecks. The need to focus on fiscal issues has obscured some other areas where his positions are less popular, like his opposition to abortion.

It is also unclear how he would govern in boom times, when austerity is a harder sell. The governor said he would have preferred not to make some of his budget cuts, but suggested that in any climate he would have pushed for less government.

More than $69 million in California welfare money, meant to help the needy pay their rent and clothe their children, has been spent or withdrawn outside the state in recent years, including millions in Las Vegas, hundreds of thousands in Hawaii and thousands on cruise ships sailing from Miami.

State-issued aid cards have been used at hotels, shops, restaurants, ATMs and other places in 49 other states, the U.S. Virgin Islands and Guam, according to data obtained by The Times from the California Department of Social Services. Las Vegas drew $11.8 million of the cash benefits, far more than any other destination. The money was accessed from January 2007 through May 2010.

Welfare recipients must prove they can't afford life's necessities without government aid: A single parent with two children generally must earn less than $14,436 a year to qualify for the cash assistance and becomes ineligible once his or her income exceeds about $20,000, said Lizelda Lopez, spokeswoman for the Department of Social Services.

Round-trip flights from Los Angeles to Honolulu on Orbitz.com Sunday started at $419 — more than 80% of the average monthly cash benefit for a single parent of two on CalWorks, the state's main aid program.

"How they can go somewhere like Hawaii and be legit on aid … they can't," said Robert Hollenbeck, a fraud investigator for the Fresno County district attorney's office. "This is money for basic subsistence needs."

The $387,908 accessed in Hawaii includes transactions at more than a thousand big-box stores, grocery stores, convenience shops and ATMs on all the major islands. At least $234,000 was accessed on Oahu, $70,626 on Maui, $39,883 on Hawaii and $22,170 on Kauai.

The list includes $12,433 spent at the upscale Ala Moana shopping center, $3,030 spent at a group of gift shops next to Jimmy Buffett's Beachcomber restaurant on Waikiki Beach and $2,146 withdrawn from ATMs on the island of Lanai, home to a pair of Four Seasons resorts and little else.

"If it's on Lanai, that should trigger an investigation," said Jon Coupal, president of the Howard Jarvis Taxpayers Assn. "California taxpayers, who are struggling to keep their own jobs, are subsidizing other people's vacations. That's absurd."

Of the nearly $12 million accessed in Las Vegas, more than $1 million was spent or withdrawn at shops and casino hotels on, or within a few blocks of, the 4.5-mile strip. The list includes $8,968 at the Tropicana, $7,995 at the Venetian and its Grand Canal Shoppes, and $1,332 at Tix 4 Tonight, seller of discount admission for such acts as Cirque du Soleil.

Although many Las Vegas casinos block the use of welfare cards in ATMs on gambling floors, more than $34,700 has been spent or withdrawn from the ATM at a 7-Eleven in the shadow of Steve Wynn's new Encore casino and a couple of blocks south of Circus Circus.

McClintock, now a congressman, was a very good state legislator. I look to him to help me assess the sometimes bewildering array of initiatives-- many of which are quite deceptive.

Though I most certainly will be voting for the Marijuana initiatve (#19) on the rest I will be following his recommendations:

McClintock on the Propositions

Prop 19: When Worlds Collide. NO. If this simply allowed people to cultivate and smoke marijuana themselves and left the rest of us alone, it would be worth considering. But it goes much further and provides that "no person shall be discriminated against or denied any right or privilege" for pot use, inviting a lawsuit every time an employer tries to require a drug test, for example. If you want to smoke pot in your own world, I don't care. But don't bring it into mine.

Prop 20: Congressional Redistricting. YES. This finishes the work we began in 2008 to get redistricting decisions away from self-interested state legislators and into the hands of a bi-partisan commission. The original reform omitted Congressional districts – this simply adds them.

Prop 21: Highway Robbery. NO. Right now, state park users pay a nominal fee that helps pay for upkeep, assuring that those who use our state parks help pay for them. This measure ends the day-user fee and shifts the cost to the rest of us by imposing an $18 per car tax increase whether we use the parks or not. Stealing money from highway travelers used to be called "highway robbery." Now it's called "Proposition 21."

Prop 22: Hands Off Our Money. YES. This takes a giant leap toward restoring local government independence and protecting our transportation taxes by prohibiting state raids on local and transportation funds. Local governments are hardly paragons of virtue, but local tax revenues should remain local.

Prop 23: Liberation from the Environmental Left. YES. In 2006, Sacramento's rocket-scientists enacted AB 32, imposing draconian restrictions on carbon dioxide emissions (yes, that's the stuff you exhale). They promised to save the planet from "global warming" and open a cornucopia of new jobs. Since then, California's unemployment rate has shot far beyond the national unemployment rate and the earth has continued to warm and cool as it has for billions of years. Prop 23 merely holds the Environmental Left to its promise: it suspends AB 32 until unemployment stabilizes at or below its pre-AB 32 level.

Prop 24: Because Taxes Just Aren't High Enough. NO. This is a predictable entry by the public employee unions to impose an additional $1.7 billion tax on businesses. The problem, of course, is that businesses don't pay business taxes – we do. Business taxes can only be paid in three ways: by us as consumers (through higher prices), by us as employees (through lower wages) and by us as investors (through lower earnings on our 401(k)'s).

Prop 25: Out of the Frying Pan and Into the Fire. NO. This changes the 2/3 vote requirement for the state budget to a simple majority – a reform I have long supported. Experience has shown that the current 2/3 vote requirement for the budget does not restrain spending and it utterly blurs accountability. But such a reform MUST repair the 2/3 vote requirement for all tax increases and restore constitutional spending and borrowing limits. Without these provisions, Prop. 25 would be a disaster for taxpayers and a recipe for bankruptcy.

Prop 26: Calling a Tax a Tax. YES. Under the infamous Sinclair Paint decision, virtually any tax may be increased by majority vote as long as it is called a "fee," gutting the 2/3 vote requirement in the state constitution to raise taxes. Prop. 26 rescinds Sinclair Paint, restores the Constitution, and calls a tax a tax.

Prop 27: OMG. NO. Want to go back to the days when politicians drew their own district lines, literally choosing their own voters? This will get us there.

One of the famous definitions of insanity is repeating the same mistake over and over again while expecting a different result. Whether that’s a perfect definition is open to debate, but one thing is certain: it’s as accurate a description of the California electorate at this moment in 2010 as you could get.

It's a common refrain whenever executives gather: California is tough on business, putting companies here at a competitive disadvantage.

But for all the bellyaching, at least one of the millstones on business — taxes — is not particularly heavy compared with other states, data show.

California takes about 4.7% of what a business produces in taxes — which happens to be the national average. The government take is higher in Alaska (13.8%), New York (5.5%) and Florida (5.3%). Even Texas, known for rolling out the red carpet for business, pocketed more than California — 4.9%.

That's according to an annual study of the tax burdens in all 50 states by the Council on State Taxation, a business-friendly group led by senior executives of Chevron Corp., General Electric Co. and other major corporations.

"California is pretty middle-of-the-pack when it comes to business taxes," said Joseph R. Crosby, the organization's senior director of policy.

So all the businesses and productive citizens fleeing California are doing so for no reason?

People have left; some have arrived. Sure there are problems in this economy, but CA long term, has, and will continue due to numerous unique advantages, grow. And when the economy picks up, CA will be a leader; few really want to leave CA and move to KS or any place else for that matter.

As for people,"California's population growth fell below 1 percent a year in 2009, but it will pick up so markedly that the state will have nearly 41 million residents by 2015, according to the state Department of Finance's demographic unit.

The new projection, based on births, deaths and domestic and foreign in- and out-migration, is that growth, calculated at 0.87 percent in 2009 and 2010, will reach 1.26 percent a year by 2015. California has seen higher growth rates in the past, topping 2 percent in 2000. But with its ever-increasing base, even a 1 percent rate means about 400,000 more Californians every year."

LOS ANGELES -- Mike Reilly spent his lifetime chasing the California dream. This year he's going to look for it in Colorado.

With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to restart his family's future 1,200 miles away from his home state's lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have sapped the allure of the place writer Wallace Stegner once described as "America only more so."

Is there something left of the California dream?

"If you are a Hollywood actor," Reilly says, "but not for us."

Since the days of the Gold Rush, California has represented a sort of Promised Land, an image that fair or not is celebrated in the songs of the Beach Boys and embodied in the stars that line Hollywood Boulevard. Gov. Arnold Schwarzenegger calls the state the "golden dream by the sea."

But for many California families last year, tomorrow started somewhere else.

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period -- more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.

California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S., according to state demographers.

Fourteen more companies have moved either jobs or entire facilities out of California, bringing to 158 the number of companies shifting resources out of state in 2010, according to a list compiled by Irvine relocation consultant Joe Vranich.

“Texas is pro-business with reasonable regulations,” one CEO respondent remarked, “while California is anti-business with anti-business regulations.” Another commented, “California is terrible. Even when we’ve paid their high taxes in full, they still treat every conversation as adversarial. It’s the most difficult state in the nation. We have actually walked away from business rather than deal with the government in Sacramento.”

Click here to view the full chart

Best and Worst States for Business 2010

“The leadership of California has done everything in its power to kill manufacturing jobs in this state,” observed another CEO. “As I stated at our annual meeting, if we could grow our crops in Reno, we’d move our plants tomorrow.”

How is it that the nation’s most populous state at 37 million, one that is the world’s eighth-largest economy and the country’s richest and most diverse agricultural producer, a state that had the fastest growth rate in the 1950s and 1960s during the tenures of Democratic Governor Pat Brown and Republican Governors Earl Warren and Ronald Reagan, should become the Venezuela of North America?

Californians pay among the highest income and sales taxes in the nation, the former exceeding 10 percent in the top brackets. Unemployment statewide is over 12.2 percent, higher than the national average. State politics seems consumed with how to divide a shrinking pie rather than how to expand it. Against national trend, union density is climbing from 16.1 percent of workers in 1998 to 17.8 percent in 2002. Organized labor has more political influence in California than in most other states. In addition, unfunded pension and health care liabilities for state workers top $500 billion and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade. When state employees reach critical mass, they tend to become a permanent lobby for continual growth in government.

Bill Dormandy, CEO of San Francisco medical device maker ITC, summed it up: “California has a good living environment but is unfavorable to business and the state taxes are not survivable. Nevada and Virginia are encouraging business to move to their states with lower tax rates and less regulatory demands.”

The California Dream. It's true, it costs more to live here; but then as I mentioned where else do you want to live? KS?People move to CA because they want to; people leave CA because they are failing like Mike Reilly and have no choice but seek cheaper alternatives.But for those who leave, new ones arrive or current companies grow especially in the high tech knowledge based industries. Don't worryabout CA; people will always chase there dream and want to be in CA.

"A recurring complaint about California - and one revived again recently - is that states with lower taxes and fewer regulations are luring businesses, and the jobs they generate, out of state. But the reality is that California loses very few jobs to other states. Business relocations are highly visible when they happen but are a misleading guide to the state's economic performance. Businesses rarely move out of or into California, and on balance, the state loses just 11,000 jobs a year. That's just .06 percent of the state's 18 million jobs. Far more jobs are gained or lost because businesses launch, expand, contract and close.

In fact, debates about California's business climate frequently understate the state's strengths. For instance, California consistently scores poorly on national business climate rankings. But these rankings suffer from a definition of "business climate" that's far too limited, focusing primarily on tax and regulatory costs. The skill level of the workforce, availability of capital, support for new business and overall quality of life are important aspects of the state's business climate as well. Focusing on the cost side of the equation fails to explain why California's growth tends to keep up with - or surpass - that of the nation."

Joe Galvez, 43, was hit with a double dose of government cuts. He lost his job with the Los Angeles County Public Works Department in 2007 and hasn't been able to find steady work since. And, he said his son's high school is so strapped for funding that it has asked parents to donate money for school supplies.

"It's gotten so bad that schools are reaching out to the parents," said Galvez, a single father of three who collects scrap so he can come up with rent for the family's Baldwin Park home. "It's bad, man."

Cities across the state have taken stringent measures to balance their budgets, said Eva Spiegel, a spokeswoman with the League of California Cities.

Oakland laid off 80 police officers and delayed pothole repairs. Fullerton laid off 14 police officers and three firefighters, cut library hours and closed restrooms at several parks. Oceanside laid off 28 police officers and three firefighters, closed a swimming pool and a recreation center and eliminated the city Bookmobile.

"Decreasing sales tax revenues and decreasing property tax revenues mean that a lot of cities have had to do some belt tightening," Spiegel said.

Overall, the state's unemployment rate remained stuck at 12.4%, one of the highest in the nation. The state lost a net 63,600 jobs in September. Local governments shed 32,400 jobs, according to the monthly report from the state Employment Development Department released Friday.

The agency said 13,300 jobs were lost in construction, manufacturing shed 2,000, and even the usually dependable health and education services sector lost 13,600.